£8bn is at stake in major VAT case


A controversial argument deployed by HM Revenue and Customs (HMRC) to detect VAT fraud in a chain of mobile phone transactions will be tested for the first time in the Court of Appeal, starting today (February 15).

The final decision could influence up to £8 billion of VAT reclaims from traders, reckon experts. The Court of Appeal hears HMRC’s case to withhold £26.6 million of combined input tax from traders Calltel, Opto Telelinks, Mobilx and Blue Sphere Global (BSG).

It will for the first time consider the UK government’s interpretation of part of the 2006 Axel Kittel ruling in the European Court of Justice. It will consider specifically HMRC’s perceived right to withhold VAT from traders under extended verification of their ‘means of knowledge’ of fraud in a supply chain.

Around 600 traders are waiting on verdicts from the VAT and Duties Tribunal still. The Treasury has withheld £4 billion-£8 billion of VAT from traders in total, according to legal experts.

An industry source close to the matter said: “Whilst the Court of Appeal is being asked to consider substantial points in relation to all three cases, it is also to consider the fundamental point that HMRC can introduce Kittel without first introducing legislation, as adopted by other EU member states. If HMRC is found to have acted in error, the UK Treasury could be liable for substantial repayments to traders.”

An HMRC spokesperson said: “HMRC’s strategy has had a dramatic impact on levels of MTIC activity and subsequent losses. HMRC’s multi faceted approach has ensured losses have been kept well below their peak in 2005/06. In three years the impact of MTIC fraud on receipts per annum has been reduced by  £1.5 billion-£2 billion.”

Dass Solicitors partner Alias Dass (pictured top) said: “Traders are depending on this case to determine if theirs are worth fighting for.”

Vantis head of tax Don Mavin (pictured bottom) said: “We anticipate the Court’s judgement will refine and clarify the way laws on fraud, means of knowledge and culpability are to be applied to such cases.”

The case will be heard over a five-day period with a judgement expected in March.