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Masstech Ltd v HMRC

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In Masstech Ltd v HMRC (TC00668 – 2 September), a company (M) carried on the business of supplying laboratory equipment and medical products. In 2006 it reclaimed input tax of £83,000 in respect of the purchase of 10,000 disposable alcohol test strips, which it sold to a French company on the same day. HMRC rejected the claim on the basis that it appeared that the purchase and sale formed part of an MTIC fraud. M appealed, contending that it had not known that the transactions were connected to fraud.

The Tribunal accepted M’s evidence and allowed the appeal, finding that M ‘could not afford to hold, and finance, a stock of test strips, and it was never its intention to effect anything other than a matched deal. These facts of a matched deal, probably effected on one day, would have arisen both in an honest and in a fraudulent transaction.’ Judge Nowlan held that ‘HMRC has failed to show, on the balance of probabilities, that the appellant had means of knowledge, or that it ought to have known, that there could be no other reasonable explanation for its transaction than that it was connected with fraudulent evasion of VAT’.

Why it matters: HMRC is successful in the majority of cases where MTIC fraud is alleged. However, the facts of this case were somewhat unusual; for example, it appears to be the only MTIC case to concern a supply of disposable alcohol test strips. Judge Nowlan held that HMRC had to show, on the balance of probabilities, that the company ought to have known that there was no reasonable explanation for the transaction other than VAT fraud. He found that HMRC had failed to prove this.

Issue: 1046
Categories: Cases