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

There can, in our view, be no doubt from the above summary that HMRC were asserting in their pleading that the Lead Appellants were participants in a scheme designed to defraud the Revenue and this justified the de-registration of the Lead Appellants. What HMRC did not do in their pleading was identify who they said were the “organisers” or “facilitators” of the scheme or “those involved in managing the scheme”. Various persons are referred to as having had a role or involvement in the operation of some part of the scheme but it is not expressly asserted in the pleading that any of them was an organiser or facilitator of the fraudulent scheme. Nor was it pleaded that any of them were dishonest or fraudulent.

An experienced pleader reading this pleading would likely conclude that HMRC had taken a deliberate decision not to plead fraud against any particular person, perhaps conscious of its obligation not to do so without sufficient credible evidence of their dishonesty. Mr Puzey, whose pleading it is, says this is not so. He said that the identities of those against whom fraud had been asserted could be inferred from the pleaded facts. The highpoint of this submission was that the role of Compass Star Ltd had been sufficiently pleaded to make clear that it was alleged to be fraudulent. Mr Puzey submitted that, having pleaded that the MUCs were involved in a fraudulent scheme and that the companies were controlled by Compass Star Ltd, that was sufficient to establish that Compass Star Ltd was acting fraudulently. We reject that submission.

As discussed above, a party who is alleging fraud must state it clearly and unambiguously in a pleading and provide full particulars. There must be no room for doubt as to whether an allegation of fraud or dishonesty is being made. Hoping that the reader will be able to infer an allegation is not good enough. Simply saying, for example, that “Compass Star had a significant degree of control in the day to day running of the MUC” (para. 37) or that it was “integral to this scheme” (para. 20) is not a distinct and unambiguous allegation of fraud or dishonesty against Compass Star Ltd: a person can have “control” over a company or be “integral” to a fraudulent business model without necessarily being fraudulent or dishonest. This is a real issue in circumstances where it appears from HMRC’s submissions that they were asserting that Compass Star Ltd (and its director) were doing the bidding of other persons that HMRC asserted were the ultimate organisers of the scheme. HMRC accepted that the directors of the MUCs were not acting fraudulently even though the MUCs were doing the bidding of Compass Star – there may, therefore, have been a real issue as to whether Compass Star Ltd and its director were acting dishonestly in doing the bidding of the ultimate organisers.

The FTT found that HMRC had not pleaded the identity of the perpetrators of the fraud with sufficient particularity. We agree.

Mr Puzey submitted that, as happened in Khatib, the allegations of fraud could be fairly made against a non-party through statements made in HMRC’s evidence. As Khatib shows, in principle, that is correct. Mr Christopher Harker (an officer of HMRC giving evidence on their behalf) in a section of his witness statement dated 28 April 2023 headed “Key Individuals” mentions 20 to 30 different persons. No allegation of fraud or dishonesty by any of those persons was expressly made although they were said to be involved or connected, in varying degrees, to a fraudulent scheme. Mr Nolan and the Aspire Group were described as “key players”. Mr Harker described Compass Star Ltd and Mr Funtanilla as “also deeply involved”. No adjective was used to describe the role of the other “key individuals” (including Annabel McLoughlin and her company Vertrio Ltd). In our view, this falls far short of being a clear and unambiguous allegation of fraud made against any given person. Indeed, this was made plain when, in giving evidence during his cross-examination, Mr Harker said in terms that he was not intending in his witness statement to allege that any individual had behaved dishonestly or had carried out fraudulent acts.

Mr Puzey made his submissions that HMRC had sufficiently pleaded or set out their case that certain persons were the perpetrators of the fraud apparently in answer to the assertion of the Lead Appellants that HMRC’s failure to do so meant that the FTT’s decision was flawed. We reject Mr Puzey’s submissions that HMRC had sufficiently pleaded, or set out in evidence, the identity of the perpetrators of the fraud. There was, in any event, no cross-appeal against the FTT’s finding that there was no sufficiently particularised pleading as to the identity of the fraudsters. Nor was there any cross-appeal against the FTT’s decision to make no finding as to the identity of the perpetrators.