Floodgates set to open in HMRC VAT conflict
Landmark case could see HMRC shelling out billions after senior judge rules refund policy is flawed
Written by Sara Yirrell
CRN, 28 May 2009
HM Revenue and Customs (HMRC) could be forced to shell out billions of pounds after a landmark case was won by a mobile phone trader accused of being involved in a fraudulent supply chain.
City law firm Thomas Cooper led a successful appeal in the Chancery Court in London, against the VAT and Duties Tribunal’s refusal to repay almost £1.5m VAT to Blue Sphere Global Limited, under the government’s unpopular Extended Verification scheme.
Sir Andrew Morritt, chancellor of the High Court, ruled last week that HMRC can no longer refuse to refund VAT to legitimate traders, in order to recover unpaid VAT by fraudulent traders.
Blue Sphere had unknowingly bought a consignment of mobile telephones from a contra-trader that had been involved in a fraudulent chain known as a ‘dirty chain’. However, Blue Sphere exported the phones in a ‘clean chain’, paying all duties required.
But HMRC decided that Blue Sphere’s VAT payment covered the missing amount in the dirty chain and refused to pay the money back.
Now the government department is facing the repayment, plus Blue Sphere’s legal costs, and Thomas Cooper solicitor Mark Whelan said there are at least 600 similar cases in the pipeline.
“This is not something that is going to go away. It is something that HMRC is going to have to deal with properly,” he said. “Instead of going for the soft targets like our client, HMRC is going to have to go after the proper criminals.”
An HMRC representative said in a statement: “HMRC is considering the implications of this judgment. HMRC is right to tackle fraud in this way – including where there is a contra scheme and we will continue to deny input tax where a trader knew or should have known that its transactions were connected with fraud. We will robustly defend our decisions in the courts.”
