In the Upper Tribunal’s recent decision in Elbrook Cash and Carry Ltd, the court provided guidance on the case management of missing trader intra-community (MTIC) fraud appeals, specifically relating to witness statements.

First Tier Tribunal Decision

In the background to this case, Elbrook had appealed HMRC’s decision to revoke its registration as an owner of duty registered goods and to deny its input VAT claim purposes on the basis that Elbrook knew or should have known that transactions it had entered into were connected with fraudulent cross-border VAT evasion.

This is a major issue in most MTIC VAT fraud appeals and the onus is on HMRC to provide satisfactory evidence. It does this in the form of witness statements from the investigating HMRC officers. Under UK case management directions, if a taxpayer disputes these witness statements, it must notify HMRC before the final hearing and identify on what basis it does so. Failure to comply with these rules can result in the First Tier Tribunal (FTT) refusing taxpayers the right to cross-examine those witnesses.

Elbrook had applied to the FTT for sections of the witness statements to be struck out or redacted because they contained inadmissible opinion evidence.; and did not accept any of the matters referred to in the witness statements.

The FTT rejected both applications and found that Elbrook should be precluded from cross-examining the witnesses whose evidence only related to VAT losses because it had not provided a sufficient level of detail on the parts of the evidence it disputed.

Elbrook appealed both these issues to the Upper Tribunal.

Decision

The UT’s judgement, firstly, confirmed, that “opinion”, inadmissible as evidence does not need to be removed from witness statements.

Secondly, it clarified that if a taxpayer does not accept certain parts of HMRC’s witness statements dealing only with VAT losses. it is sufficient to indicate in advance which passages it disagrees with and which will therefore be cross-examined at the hearing.

Before this change, taxpayers were expected to indicate the grounds on which they disputed these passages. The UT said that if going forward, large areas of statements are not accepted and the business subsequently fails to cross-examine them, costs sanctions should be imposed.

The reasoning for this guidance is that businesses should be protected from revealing their cross-examination strategy before the hearing. Also, only witnesses whose evidence will be subjected to cross-examination will generally need to attend the tribunal and this should help reduce long court hearings.

This change to the practical application of case management rules for MTIC fraud cases, removing the need for taxpayers to show the basis on which they don’t accept HMRC’s evidence is an interesting clarification.  We shall see whether this results in blanket areas of witness statements being disputed.

By |August 13th, 2019|