Aria Technology loses Court of Appeal bid over £750k VAT dispute

Firm must pay HMRC's legal costs, rules judge

The Court of Appeal has thrown out Aria Technology's efforts to squeeze out of a £300k tax bill after HMRC found £750k of the firm's input tax was not creditable*. Top judges have ordered the company to pay the UK tax collector's legal bills in the case.

The ruling marks the third consecutive loss in court for the company over its efforts to avoid paying its full VAT bill.

At the Royal Courts of Justice last week, Lord Justice Singh dismissed ATL’s appeal against HMRC’s 2008 assessment of ATL’s tax bill for the period 07/06.

The senior Court of Appeal judge, handing down a judgment composed by himself along with Lord Justices McCombe and Leggatt, said: “The appellant is to pay the respondents’ costs of and incidental to the hearing. Such costs to be assessed if not agreed within 42 days. Permission to appeal to the Supreme Court is refused.”

It is unclear whether ATL will apply for permission to appeal directly to the Supreme Court.

ATL was allowed to appeal against an earlier judicial ruling that it took part in a VAT carousel fraud on just one legal ground: that two 2008 letters from HMRC official Timothy Bailey setting out the tax bill as well as ATL’s options to appeal against it did not, legally, count as a formal “assessment” of tax due. The first letter dated 6 October 2008 said, in part:

The Commissioners are satisfied that the transactions set out in the attached appendix form part of an overall scheme to defraud the revenue. The Commissioners are also satisfied that there are features of those transactions, and conduct on the part of [ATL], which demonstrate that you knew or should have known that this was the case.

If the letter did not count as a formal “assessment” of tax due, ATL’s barrister Michael Firth argued, everything HMRC did after that point was wrong. What it had done through Bailey’s letter, in Lord Justice Singh’s summary of Firth’s courtroom arguments, was “not accept the VAT return as filed by [ATL] as being correct”. This was different, the barrister said, from an assessment of tax due.

Lord Justice Singh dismissed this, ruling: “A notification of an assessment can be contained simply in a letter,” also dismissing the suggestion that Bailey's previous admission to the First-Tier Tribunal at a much earlier stage in this case, namely that he didn’t think he had made a formal assessment of ATL's VAT bill, was determinative.

Previously ATL had appealed against HMRC's findings to the FTT and then the Upper Tribunal before going to the Court of Appeal. All three courts and tribunals rejected the company's appeals.

ATL used to be the corporate entity behind the PC component reseller website, now operated by Velo Systems Ltd, another of sole ATL director and shareholder Aria Taheri's companies. Taheri has always denied that his company took part in fraud. He also denies the FTT's finding that he personally knew or ought to have known of the fraud.

ATL's latest filed accounts, readable on Companies House, show that it had just one employee in the year to 31 January 2019 and one employee in the previous year. ®

What is MTIC fraud?

VAT carousel fraud, formally known as MTIC fraud, is a complex scam that relies on goods being sold across EU countries’ borders. Goods legally imported free of VAT are then resold in a long chain, often entirely paper-based, of small companies before being exported again. Each sale in the chain incurs VAT which is charged by each company in the chain to the next one along. At the point of export the last link in the chain, or carousel, can reclaim the VAT from the government; VAT is payable only on domestic sales.

The scam works by one of the middle links in the chain not paying the collected VAT to the government. The last business in the chain then reclaims the (unpaid) VAT from the government, with both dodgy links then disappearing without trace. To help disguise the scam from anti-fraud investigators, criminals sometimes use legitimate businesses as part of their chains, duping greedy salesmen by making purchase and onward sale offers that usually involve banking a reasonable margin in return for little commercial effort.

A fuller explanation and analysis of VAT carousel fraud can be read read here on The Register.

* Input tax is paid at the point when a business buys a product that attracts VAT, for example. You can then claim it back from the taxman when you make a sale. The court said Aria Technology Ltd had claimed a repayment of £445,156.98 "on the basis that all of its input tax was creditable". HMRC then decided that £758,770.69 of "the Appellant's input tax was not creditable" - meaning "HMRC was owed £313,613.71".

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