Alistair Webster QC, acting for the taxpayer in Pacific Computers Ltd v HMRC, has successfully challenged the refusal to pay a VAT input tax reclaim in an MTIC case. The decision of the First Tier Tribunal is set out in very trenchant terms and is important for a number of reasons.
Back“ HMRC’s case was conducted very aggressively and it followed HMRC’s standard argument that, where there was proved to be fraud in a supply chain, with back to back transactions, HMRC was entitled to deduct because the taxpayer must have known of the fraud – it was the only reasonable explanation for the trades. This argument has succeeded before some tribunals, but here was exposed – and rightly so - as inadequate. The tribunal was highly critical of HMRC’s approach, which it felt reflected a concentration on the overall chains and not upon the position of the individual taxpayer.
It is a decision which should give some encouragement to taxpayers innocently caught up in fraudulent chains and should give HMRC serious pause for thought and should encourage it to rethink its approach.
Taxpayers who are genuine traders have required some courage over the past few years to challenge HMRC’s refusals – it can be a costly and time consuming process. This case demonstrates that, carefully analysed and properly presented – and concentrating upon the evidence rather than abstruse arguments –appropriate cases can be won – and well won. Anyone who troubles to read the judgment will conclude that HMRC did not merely lose the case – it lost it comprehensively.
I was greatly assisted by the expert support of Pacific’s solicitor, Sally Hutchings, and Phillip Webb, whose joint expertise is enormous.”