Weekly VAT Update – 5 December 2017
Pension scheme management fees for defined benefit schemes
This case involved United Biscuits and its defined benefit pension scheme which was heard in the High Court. The case involved a VAT refund claimed from HMRC on services supplied to its defined benefit pension fund. It was based on the management services being insurance services for VAT purposes and therefore exempt. The judge did not agree with United Biscuits and said that the pension fund services supplied to the scheme could not be classified as insurance services. HMRC’s view therefore prevailed and the appeal of United Biscuits and its pension fund was dismissed.
Denial of input tax recovery where there is fraud elsewhere in the supply chain
If a trader knows or should have known that transactions it is involved in are connected to fraudulent evasion of VAT, the trader can be denied input tax recovery. In this case, the trader C F Booth (“CFB”) was denied input tax recovery of £2,600,000 on 655 purchases of various metals. The 74-page judgment ultimately decided that CFB should have known that its traders were connected with fraud. It therefore found that HMRC was in order to deny input tax recovery, for the reasons that it stated to be:
- the lack of any commercial rationale for its position at the end of the chains in which a number of other participants were frequently able to obtain metal at a better price than CFB;
- its continued trading with companies controlled by individuals, such as Jonathan France and Mr Cooper, notwithstanding that companies with which they were previously associated had been wound up, irrespective of the risk in doing so:
- its failure to act on repeated warnings by HMRC of tax losses in deal chains in which it participated;
- its continued trade with businesses notwithstanding being warned of the dangers of doing so by HMRC;
- the absence of any critical analysis of due diligence, by staff conducting checks or directors; and
- third party payments made outside he UK when identified by HMRC as a risk.
These points, not least item 6, which crops up a lot in practice, serve as a good checklist for avoiding the denial of input tax recovery for anyone trading in a market where fraud is common.