Cantor Fitzgerald Europe (CFE) has lost its case at the Court of Appeal (CoA) concerning the reclaim on VAT on invoices that it had received from a fraudulent trader. CFE began trading in carbon credits and received invoices from a supplier that supplied it with such credits, Stratex. Stratex supplied invoices without a VAT registration number and didn’t name CFE on the invoices. The invoices contained VAT amounting to some £5.6m. CFE paid these invoices inclusive of the VAT.
On further enquiry, it was noted that Stratex wasn’t actually registered for VAT and on inspection of its office registered with Companies House, that this was only a serviced address and the people at the offices were only agents for the people who had set up the company who had since disappeared. CFE had requested that Stratex re-issue the invoices, which they promised to do, but in fact never did.
HMRC declined to allow CFE to deduct the VAT disclosed on the fraudulent invoices from and it had been held that at the relevant time, 2009, CFE couldn’t have been aware that the transactions were fraudulent. Even so, HMRC held that CFE hadn’t performed the necessary due diligence and that it wasn’t required to grant the right of the deduction as CFE didn’t hold the evidence necessary to receive that right.
CFE appealed and both lower tax tribunals found for HMRC leading the appeal at the CoA. The CoA reviewed the prior case law at the European Court of Justice up to the point of Brexit and found that the basic requirement to entitle a trader to deduct input tax was the possession of a valid VAT invoice, that necessarily included the VAT registration number of the supplier. CFE didn’t have this since its supplier was fraudulent and it would have been a simple matter to check whether the company was indeed VAT registered via online portals. The CoA also reviewed post-Brexit case law as it may have regard of those decisions, but those decisions were not binding on the CoA and didn’t help CFE’s case. The CoA found that while HMRC have certain discretions and could have applied its discretion in this case, the fact that simple due diligence wasn’t carried out worked against CFE.
The basic check as to whether a supplier is VAT registered takes less than 5 minutes. Does the supplier’s VAT registration number appear on the invoice and is that a valid VAT registration number, using HMRC’s portal? In this case, 5 minutes of work in advance of invoice payment could have saved CPE £5.6m.
The decision can be found at: Tower Bridge GP Limited v The Commissioners for HMRC – Find case law (nationalarchives.gov.uk)
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