BTS Specialised Equipment Ltd v Revenue & Customs Commissioners : NTS Specialised Equipment Ltd v Revenue & Customs Commissioners (2017)


In relation to a missing trader intra-community fraud appeal, although a First-tier Tribunal had erred by committing several procedural irregularities in its decision to uphold HMRC's refusal to allow the deduction of input tax because the appellants knew that the transactions concerned were connected with the fraudulent evasion of VAT, the errors did not undermine its decision.


The appellants appealed against the First-tier Tribunal's decision upholding HMRC's refusal to allow the appellants to deduct input tax in relation to multiple transactions involving mobile phones.

HMRC refused the deduction on the ground that the transactions formed part of an overall scheme to evade VAT and the appellants, through their director, knew, or should have known, that the transactions were connected with fraud. The tribunal found that the director was dishonest, and that was equated with actual knowledge of fraud. It concluded that the transactions were contrived and orchestrated and the appellants knew that they were connected with the fraudulent evasion of VAT.

The appellants argued that the tribunal erred in law by committing procedural irregularities or by making irrational or perverse findings of fact that were highly material and fundamental to the decision.


The tribunal erred in concluding that its analysis of the transactions which involved consignments split for onward sale but sold on a single day (the "split deals") provided the "clearest possible evidence of orchestration and contrivance" without having given the appellants the opportunity to address its finding. However, the findings in relation to the "split deals" were not significant to the overall decision. Nevertheless, the case would be considered on the basis that the error was significant. It was also necessary to consider whether the other identified errors of law, taken cumulatively, were so serious as to pervade the overall findings to the extent that the tribunal's conclusions concerning dishonesty could not reasonably have been reached (see paras 106-107, 173 of judgment).

Although there were errors on the tribunal's part, its decision did not necessarily have to be set aside. Discretion should not be exercised under the Tribunals, Courts and Enforcement Act 2007 s.12 if there was a sufficient basis in the tribunal's findings, which were fully reasoned and not subject to challenge, to justify its conclusion that the appellants knew of the connection with fraud, Megtian Ltd (In Administration) v Revenue and Customs Commissioners [2010] EWHC 18 (Ch) applied. In addition, findings of fact should not be regarded as disclosing an error of law where it was not significant in relation to the findings in the tribunal's conclusion as to the appellants' knowledge of the connection with the fraudulent evasion of VAT, Georgiou (t/a Marios Chippery) v Customs and Excise Commissioners [1996] S.T.C. 463 applied. The tribunal had to evaluate all the relevant primary facts and draw inferences from them to determine whether the appellants had actual knowledge that their transactions were connected with fraudulent VAT evasion. That evidence was necessarily circumstantial (paras 67-68, 174-175).

The tribunal did rely on its analysis of the "split deals" to justify its inference of contrivance in relation to the single sales transactions. However, the findings on the "split deals" were not as critical to the outcome of the decision as the appellants argued. The context and the features of the trading were critical factors in the tribunal's overall assessment of state of mind and knowledge as to the existence of contrivance and orchestration, which the director admitted, with hindsight, was present in all the transactions. The director put his honesty as central to the appellants' case. The tribunal placed considerable emphasis on his answers on cross-examination. It did not believe his evidence and its reliance on his admission that he could not think why a successful fraudster would allow a free agent into his fraud, was clearly highly significant to its overall assessment of his honesty. That was in circumstances where the director was very knowledgeable about the existence of missing trader intra-community fraud and its prevalence in the mobile phone industry. No weight was placed on the order of the specific findings of dishonesty in the tribunal's decision. Its findings in relation to dishonesty, contrivance and orchestration and the appellants' actual knowledge of the connection with fraud had not all been infected by its findings on the "split deals". There were also a considerable number of independent, wide-ranging findings of dishonesty on the director's part. The honesty and credibility of the director was a finding of fact and as the tribunal's conclusions were not undermined by the findings on the "split deals" to the extent submitted by the appellants, that finding was unassailable (paras 177, 179-185).

There were minor errors of law in relation to several matters but none were significant in relation to the conclusion. There were more significant errors in relation to other matters but the tribunal's overall findings concerning the director's dishonesty could reasonably have been reached. Taken cumulatively, the errors did not undermine the decision to the extent that it should be set aside (para.186).

Notwithstanding the procedural irregularity in relation to its findings on the "split deals" and the other errors of law, the unchallenged factors together with the factors unsuccessfully challenged that the tribunal considered constituted a sufficient basis for its conclusion that the appellants knew that the transactions were connected with the fraudulent evasion of VAT (para.187).

Appeal dismissed