UT/2024/000069 - [2025] UKUT 00236 (TCC)

There is a very significant overlap between grounds 3 and 4 and the alleged lack of principle in the FTT’s reaching its decision as to the existence of a fraud in circumstances where it declined to make any findings that particular persons had been fraudulent.

Mr Margolin submitted that, in circumstances where the organisers of the MUC scheme had not been identified in the SOC, the FTT could not properly then conclude – as it did at [346] of its decision – that the unidentified organisers “must have known” that the Lead Appellants were not entitled to use the FRS as a result of their association with the organisers and were only entitled to claim the employment allowance in consequence of avoidance arrangements. This was a perverse finding or was wrong as a matter of logic. There was no reasoning to support it.

We do not consider that there is anything in these submissions.

As we have explained above, the FTT identified at [339] to [345] those aspects of the evidence justifying its “conclusion as to the lack of any independence or control by the directors of the Lead Appellants of “their” MUCs who, as alleged in the SOC are “directors in name only” and approve whatever is asked of them by the organisers of the fraud who clearly have a dominant influence over them.” The FTT found as a fact that the directors of the Lead Appellants were not genuinely in control of the MUCs of which they were directors.

The FTT’s conclusion at [346] was, as the FTT expressly stated, based on “all of the circumstances” of the case (including, but not limited, to the matters discussed at [339] to [345]). In addition, having stated its conclusion in clear terms at the beginning of [346], the FTT also went on to hold that “applications for the FRS and EA were made not only knowing that was the case but also disguising the fact from HMRC by creating the false impression of the MUCs being independent entities when that was clearly not the case.” In other words, the FTT found as facts that the MUCs were not independent entities and that steps had been taken to create the false impression that they were. In the light of those findings, we consider that it was open to the FTT to reach the conclusions that it did at [346].

Mr Margolin also submits that it was procedurally unfair for the FTT to make this central finding because (1) this was not the case advanced by HMRC, and (2) in circumstances where the “organisers” were never identified, it was in practical terms impossible for the Lead Appellants to have addressed the issue of whether they “must have known” that the MUCs were not entitled to use the FRS and were entitled to the employment allowance only in consequence of avoidance arrangements.

We reject that submission.

In his oral submissions, Mr Margolin said that if HMRC had pleaded or identified clearly in evidence who it alleged were the perpetrators of the fraud, the Lead Appellants might have called different witnesses or otherwise approached the case in a different way. We do not consider there is any substance to this point. HMRC had identified the key individuals and the facts they relied on as to their involvement. They just did not clearly assert that one or more of the key individuals was a fraudster. The Lead Appellants had all the information they needed as the FTT had found at [333]: in fact, the Lead Appellants did file evidence, and make submissions, designed to address the core contention made by HMRC that the MUC scheme was a fraudulent scheme.

Mr Margolin also submitted that the case they came to meet was a case that the promoters or intermediaries were the fraudsters. This was based on the fact that one of the many references to “organisers/facilitators” was in paragraph 41 of the SOC, which said:

“The MUCs only existed to supply the organisers/facilitators and to pay for associated services. The organisers/facilitators business model relied on it solely purchasing from the MUCs. The MUCs, and organisers/facilitators operated for the benefit of the Scheme as a whole. The Scheme would have been unworkable if the organisers/facilitators did not have a dominant influence over the MUCs, and if the MUCS were free to contract elsewhere.” [emphasis added]

From the emphasised words it is said that HMRC’s case was understood to be that the organisers/facilitators were the intermediaries or promoters to whom the MUCs supplied labour. However, it seems to us that the pleading, when read objectively as a whole, is clear that HMRC were not identifying the promoters or intermediaries as the organiser/facilitators of the fraudulent scheme – they were, in fact, studiously avoiding identifying who any of the organisers/facilitators were. That seems to us also to be clear when paragraph 41 is read in the context of paragraph 40, which was in these terms:

“The MUCs were all associated with another person. The MUCs were each under the dominant influence of at least one other person. Further, the MUCs and that other person were closely bound to one another by financial, economic, and organisational links. The organisers/facilitators were, either individually or cumulatively, that “other person”. The Filipino director of each MUC exercised no practical day-to-day control of their business. That control was exercised by the organisers/ facilitators who arranged the supply of the individual workers by each MUC and dealt with all the financial aspects of the MUCs transactions.”

Paragraph 40 refers to the unidentified ringleaders of the scheme. The reference in paragraph 41 to the “organisers/facilitators” is, therefore, a reference to the organisers/facilitators in paragraph 40. In any event, if the Lead Appellants really had difficulty in understanding paragraph 41, they could and should have made a request for further information. But they did not.

We also note that, in the cross-examination of Mr Funtanilla and Ms McLoughlin, the FTT allowed it to be put to them that they knew the scheme was intended to give a false impression that the MUCs were independent entities. They each denied it. The FTT reserved for further consideration whether it would take this line of questioning into account. In the event, the FTT made no findings in relation to either witness of fraud or dishonesty.

We do not think that this way of proceeding by the FTT created any procedural unfairness. In particular, we find unconvincing the assertion made by Mr Margolin that the possibility of what was a very limited line of questioning in the context of the proceedings as a whole lasting 13 days put the Lead Appellants at a disadvantage in preparing for the hearing. Looked at in the round, they knew the case they had to meet.

For the reasons given above, we reject grounds 3 and 4.

As formulated in their notice of appeal, the Lead Appellants took issue with the FTT’s finding at [358] that they were under the control or dominant influence of others with the result that HMRC were entitled to have regard to that association in making their decision to de-register the Lead Appellants.

The short point behind this ground of appeal was that this finding by the FTT must have been a reference to the provision of Regulation 55A(2) of the 1995 Regulations under which one person is associated with “another person” if that other person “makes supplies in the course or furtherance of a business carried on by him” and, as per paragraph (a), “the business of one is under the dominant influence of the other”. As the FTT had not identified the organisers of the scheme, it was not, so said the Lead Appellants, in a position to find that those unidentified persons were making supplies in the course or furtherance of a business carried on by them, which was a precondition for the application of paragraph (a).

However, as HMRC pointed out, the FTT had also found at [346] that the Lead Appellants “were not entitled to use the FRS as a result of their association with the organisers and being closely bound to one another by financial, economic and organisational links”. That was a clear reference to paragraph (b) of Regulation 55A(2) (which referred to those links in precisely those terms), and, as it was clear that the MUCs were making supplies, there was no further need to establish that the organisers were making supplies in the course or furtherance of a business carried on by them. We agree with HMRC that this is the clear effect of Regulation 55A(2).

Indeed, in his oral submissions before us, Mr Margolin accepted that this was the case and that, despite what he said to be an error in the way the FTT expressed itself at [358] of its decision, HMRC could, in principle, rely on paragraph (b) of Regulation 55A(2). However, he submitted that they could do so in this case if, but only if, the finding made by the FTT at [346] about the links between the organisers and the Lead Appellants was not vitiated by an error of law. As to which, Mr Margolin submitted that the finding of an association could not be divorced from the finding that the MUCs were all part of a centrally controlled fraud. If, as he contended, there were errors in relation to the FTT’s approach to the fraud issue, then those errors “necessarily infected” the FTT’s findings in relation to the association between the MUCs and the organisers of the alleged fraud.

As re-formulated in that way, we reject this ground of appeal. In our view, for the reasons given above, the FTT was entitled to reach the findings that it did in relation to the fraudulent nature of the MUC scheme. Accordingly, there could be no cross-contamination of the separate finding that there were links between the organisers of the scheme and the MUCs.

For the reasons given above:

In exercise of the power conferred by s.12(2)(a) and (b)(ii) of the Tribunals, Courts and Enforcement Act 2007, we consider that we should set aside the decision of the FTT on the Ablessio issue and re-make the decision.

A determination that it is probable that VAT numbers will be used fraudulently can (and indeed often will) be made as a result of inferences drawn by reference to the evidence as a whole, whether or not any given person could be said to be fraudulent or dishonest.

The FTT found at [347] of its decision that there was “sound evidence giving objective grounds for concluding that the VAT numbers of the Lead Appellants were used for fraudulent purposes”. It is clear that, if it had not gone on to consider (wrongly in our view) a need for knowledge of the directors in relation to the VAT fraud, the FTT would have held that the Lead Appellants were lawfully de-registered by HMRC.

The terms of the opening half of [347] of the FTT’s decision largely but not wholly reflect [34] of Ablessio. The proper focus should, as a matter of proportionality, have been on whether it was “probable” that the VAT numbers of the Lead Appellants “will be used” fraudulently (rather than on whether the numbers “were used” in that way in the past). That is because the act of de-registration is a prospective one.

Plainly, in determining whether the relevant evidential standard is met in relation to that anticipated future state of affairs, evidence of what has happened in past will be relevant. In this case, there was no evidence found by the FTT that the risk of fraudulent use of VAT numbers would diminish in the future.

Accordingly, on the facts found by the FTT and applying the law in the way we have described above, we consider that HMRC were entitled to de-register the Lead Appellants.