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 aria.co.uk 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".

Similar topics


Other stories you might like

  • Lonestar plans to put datacenters in the Moon's lava tubes
    How? Founder tells The Register 'Robots… lots of robots'

    Imagine a future where racks of computer servers hum quietly in darkness below the surface of the Moon.

    Here is where some of the most important data is stored, to be left untouched for as long as can be. The idea sounds like something from science-fiction, but one startup that recently emerged from stealth is trying to turn it into a reality. Lonestar Data Holdings has a unique mission unlike any other cloud provider: to build datacenters on the Moon backing up the world's data.

    "It's inconceivable to me that we are keeping our most precious assets, our knowledge and our data, on Earth, where we're setting off bombs and burning things," Christopher Stott, founder and CEO of Lonestar, told The Register. "We need to put our assets in place off our planet, where we can keep it safe."

    Continue reading
  • Conti: Russian-backed rulers of Costa Rican hacktocracy?
    Also, Chinese IT admin jailed for deleting database, and the NSA promises no more backdoors

    In brief The notorious Russian-aligned Conti ransomware gang has upped the ante in its attack against Costa Rica, threatening to overthrow the government if it doesn't pay a $20 million ransom. 

    Costa Rican president Rodrigo Chaves said that the country is effectively at war with the gang, who in April infiltrated the government's computer systems, gaining a foothold in 27 agencies at various government levels. The US State Department has offered a $15 million reward leading to the capture of Conti's leaders, who it said have made more than $150 million from 1,000+ victims.

    Conti claimed this week that it has insiders in the Costa Rican government, the AP reported, warning that "We are determined to overthrow the government by means of a cyber attack, we have already shown you all the strength and power, you have introduced an emergency." 

    Continue reading
  • China-linked Twisted Panda caught spying on Russian defense R&D
    Because Beijing isn't above covert ops to accomplish its five-year goals

    Chinese cyberspies targeted two Russian defense institutes and possibly another research facility in Belarus, according to Check Point Research.

    The new campaign, dubbed Twisted Panda, is part of a larger, state-sponsored espionage operation that has been ongoing for several months, if not nearly a year, according to the security shop.

    In a technical analysis, the researchers detail the various malicious stages and payloads of the campaign that used sanctions-related phishing emails to attack Russian entities, which are part of the state-owned defense conglomerate Rostec Corporation.

    Continue reading
  • FTC signals crackdown on ed-tech harvesting kid's data
    Trade watchdog, and President, reminds that COPPA can ban ya

    The US Federal Trade Commission on Thursday said it intends to take action against educational technology companies that unlawfully collect data from children using online educational services.

    In a policy statement, the agency said, "Children should not have to needlessly hand over their data and forfeit their privacy in order to do their schoolwork or participate in remote learning, especially given the wide and increasing adoption of ed tech tools."

    The agency says it will scrutinize educational service providers to ensure that they are meeting their legal obligations under COPPA, the Children's Online Privacy Protection Act.

    Continue reading
  • Mysterious firm seeks to buy majority stake in Arm China
    Chinese joint venture's ousted CEO tries to hang on - who will get control?

    The saga surrounding Arm's joint venture in China just took another intriguing turn: a mysterious firm named Lotcap Group claims it has signed a letter of intent to buy a 51 percent stake in Arm China from existing investors in the country.

    In a Chinese-language press release posted Wednesday, Lotcap said it has formed a subsidiary, Lotcap Fund, to buy a majority stake in the joint venture. However, reporting by one newspaper suggested that the investment firm still needs the approval of one significant investor to gain 51 percent control of Arm China.

    The development comes a couple of weeks after Arm China said that its former CEO, Allen Wu, was refusing once again to step down from his position, despite the company's board voting in late April to replace Wu with two co-chief executives. SoftBank Group, which owns 49 percent of the Chinese venture, has been trying to unentangle Arm China from Wu as the Japanese tech investment giant plans for an initial public offering of the British parent company.

    Continue reading
  • SmartNICs power the cloud, are enterprise datacenters next?
    High pricing, lack of software make smartNICs a tough sell, despite offload potential

    SmartNICs have the potential to accelerate enterprise workloads, but don't expect to see them bring hyperscale-class efficiency to most datacenters anytime soon, ZK Research's Zeus Kerravala told The Register.

    SmartNICs are widely deployed in cloud and hyperscale datacenters as a means to offload input/output (I/O) intensive network, security, and storage operations from the CPU, freeing it up to run revenue generating tenant workloads. Some more advanced chips even offload the hypervisor to further separate the infrastructure management layer from the rest of the server.

    Despite relative success in the cloud and a flurry of innovation from the still-limited vendor SmartNIC ecosystem, including Mellanox (Nvidia), Intel, Marvell, and Xilinx (AMD), Kerravala argues that the use cases for enterprise datacenters are unlikely to resemble those of the major hyperscalers, at least in the near term.

    Continue reading

Biting the hand that feeds IT © 1998–2022