My Secrets Limited v Commissioners for Her Majesty's Revenue and Customs
Decision date: 20 January 2011
Neutral citation: [2011] UKFTT 72 (TC)
Overall AI summary confidence: high
Short overview
This short overview is intended to summarise the case, issues and outcome so far as they are supported by the judgment.
AI confidence in this short overview: high
This appeal concerned repayment of input VAT claimed by My Secrets Ltd for four June 2006 purchases and three July 2006 purchases traced into MTIC chains. The Tribunal found the June transactions were connected to VAT fraud attributable to a defaulter (RSSA) and that the appellant ought to have known the only reasonable explanation was fraud, so the June claim was disallowed. For the July transactions the Tribunal found a tax loss caused by the chain's defaulter (V2) but concluded HMRC had not proved V2 intended to evade VAT in respect of the appellant's purchases, so the July claim was allowed. The result was dismissal of the June claim and repayment for the July deals.
Ratio decidendi
This summary is intended to identify the ratio decidendi, meaning the legal reasons for deciding and the binding part of the decision.
AI confidence in this ratio decidendi summary: medium
The Tribunal applied the civil standard (balance of probabilities) and held that input tax may be refused where objective circumstances show the purchaser knew or ought to have known that the only reasonable commercial explanation for the transactions was connection with fraudulent evasion (applying Kittel/Mobilx principles). In practice, factors such as rapid back-to-back trades, circular payments, common use of particular bank accounts, and implausible market behaviour can establish constructive knowledge.
Obiter dicta
This summary is intended to identify obiter dicta, meaning observations made by the way that were not necessary to deciding the case and are not binding.
AI confidence in this obiter dicta summary: medium
The Tribunal made non-binding observations emphasizing focus on surrounding circumstances and trading patterns over formal due-diligence checklists, and noted limitations of certain evidence types (e.g. IMEI scans) in these facts. It also commented that indicators like same-day chains, circular payments and unreal market shares are persuasive circumstantial evidence of contrivance in MTIC chains.