HMRC has withheld VAT from around a dozen UK traders since 2002. The long-running UK litigation – which carries the name of the biggest trader, Teleos – was referred to the ECJ on a technicality, to decide whether documentation for the export of goods was sufficient for traders to reclaim VAT or whether goods needed to physically leave the UK for traders to claim repayments.
The group of UK traders supplied Spanish company Total Telecom, which instructed them to transport the goods to a UK freight-forwarder called Euro Sellers. Total Telecom said it would arrange with Euro Sellers for the transport of the goods out of the UK.
The ECJ said that, as far as the UK traders could discern, they had received the correct documentation from Euro Sellers and applied to HMRC for VAT repayments. When HMRC investigated, it discovered the stock never left the UK and withheld VAT from the traders for their involvement in a carousel fraud.
But the ECJ ruled that the documentation obtained by UK traders was sufficient. It said they conducted themselves correctly, had no reason to suspect the onward involvement of their goods in a VAT fraud, and had fairly believed the veracity of the export documentation.
Alias Dass, a solicitor at Dass Solicitors who has been involved with the case, said: “Until now, HMRC has argued that, unless goods physically leave these shores, it is right to withhold VAT. This decision says that, provided traders have carried out the right procedures, they cannot be held responsible for VAT fraud.”
Pending a UK court ruling, HMRC must release £18 million in VAT, as well as pay a repayment supplement of five per cent of the total monies withheld, plus interest and legal costs to traders.