Lawyer claims HMRC’s ‘phoney’ VAT war is over


The verdicts have caused panic within HMRC and it has, at huge cost, appointed forensic accountants KPMG to bring evidence on its behalf in future tribunal and High Court hearings.

Suddenly, the log-jam of appeals by traders against HMRC over withheld VAT payments has started to go before the tribunal, and traders are starting to win landmark decisions.

Hassan Khan, of VAT lawyers The Khan Partnership, said: “It’s a good psychological boost to the industry and shows the tribunal is independent, and not afraid to find against HMRC.

“This is a crunch time. The first few cases are now through and traders are winning some of them. The phoney war is over.”

‘Means of knowledge’

At the end of February, mobile phone trader Olympia won its appeal against HMRC for around £1.8 million in withheld VAT repayments. HMRC’s ‘means of knowledge’ argument, for the second time in two months, fell down as the tribunal rejected its contentious claims a grey market does not exist and that foreign-sourced handsets are a clear indicator of VAT fraud in a supply chain.

HMRC indicated last week it would appeal the Olympia decision and join it with its appeal of the Livewire decision in January, which saw the tribunal order HMRC to repay £2.3 million in VAT to Livewire.

Also late last month, the tribunal rejected HMRC’s late submission of evidence in its case against trader Brayfal, which has a £1.5 million VAT reclaim held up by HMRC.

HMRC has appealed the tribunal’s decision not to allow late submissions of evidence (a tactic HMRC has used in tribunal hearings) to the High Court.

This appeal was heard within the last week in front of Judge Justice Lewison who delivered his decision in favour of Brayfal.

Since January 2006 HMRC has stopped all VAT repayments to all mobile phone and computer chip traders.

Prior to the Livewire case, not a single mobile phone or computer chip trader had seen a VAT repayment since June 2006. HMRC’s policy has been to refuse to make decisions to disallow VAT repayments at all.

Instead it has withheld VAT indefinitely in order to carry out its investigations into traders’ supply chains.

Traders have been forced to appeal HMRC’s actions to the High Court, at which point HMRC has produced decision letters to withhold VAT payments on the grounds of ‘means of knowledge’ and diverted appeals back through the VAT and Duties Tribunal.

Only since January have the first cases started to go before the tribunal.