The VAT and Duties Tribunal has ruled HM Revenue and Customs (HMRC) was right to withhold £5 million in VAT repayments from trader Honeyfone.
It is HMRC’s first major VAT win against the mobile phone trade since the case against CallTel Telecom and Opto Telelinks in May last year.
Between times, the industry has scored significant victories in the Olympia Technology and Livewire Telecom tribunals.
The court concluded Honeyfone had ‘means of knowledge’ of missing trader VAT fraud in its supply chain.
It rejected its case on the grounds of sloppy supply chain management. The tribunal said its trading suggested “a less cautious approach to evaluation of… VAT fraud than that which a reasonable businessman may exhibit”.
Honeyfone’s transactions with traders with little company history, its high credit from them and its limited supply and customer channels were suspicious, suggested the tribunal. Its poor due diligence and its failure to properly record IMEI numbers of stock, mostly Nokia handsets, for export also put paid to its case.
Traders dismissed the facts presented by Honeyfone in the hearing as “diabolical”, and said the ruling had little bearing on future tribunals. “Each case is turning on its facts,” said one trader.
HMRC was unavailable for comment. It is unclear whether Honeyfone will appeal the ruling.
At the time of going to press, the tribunal’s ruling on the Our Communications case was expected on May 30. The Brayfal tribunal hearing has also concluded and a decision is expected before the summer recess.
Traders were confident last week of victories in both.
• Separately, confidence in future trade victories, despite the loss here, appeared last week reflected in the willingness of certain insurance companies to ‘gamble’ on VAT hearings going the way of traders.
Sources claimed a new form of third party litigation funding has emerged, which is seeing firms take on the cost of traders’ VAT cases in return for 20-50 per cent of proceeds from victories.
“It is a calculated risk. These companies are showing a sudden interest in VAT tribunal cases, and will pay fees for a chunk of the monies received,” said a source.