Devika: Livewire win is double-edged


For years HMRC has seen handset traders as a soft target for “carousel” prosecutions.

The government’s revenue men dig up a missing link in VAT payments during a transaction, then unleash their forces on ‘innocent’ mobile dealers who purchase from a suspected trader.

The dealer is then embroiled in a ruinously expensive legal battle to prove their innocence.

But trader Livewire’s recent victory against HMRC is also now a jubilant victory for dealers. 

The case means HMRC must now lower its measure of how it defines “means of knowledge”.

In reality this means HMRC can no longer unilaterally refuse to refund VAT payments. HMRC must now submit documented evidence the dealer had means of knowledge that VAT payments were in fact being pocketed by traders.

Although HMRC now has to work harder to justify its accusations, it is likely that more dealers will win cases and receive refunds owed to them.

But existing cases before the courts may only see the positive effects at the appeal stage. Future cases will be more likely to favour defendants and Livewire will be seen as a landmark precedent for the industry. 

It should trigger a wave of refund demands against HMRC.

The Livewire case now puts the focus back on establishing evidence that can be presented to the Court. 

An unintended effect could mean dodgy dealers up to their necks in VAT fraud may be able to evade capture.

Whereas pre-Livewire, HMRC just had to state they had reasonable knowledge. Now the authorities must work harder to prove fraud and catch criminals.