England and Wales High Court of Justice

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McNicholas Construction Co Ltd v Customs & Excise, Court of Appeal - Administrative Court, June 16, 2000, [2000] EWHC Admin 357

50


Case No: CO/974/1999

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
CROWN OFFICE LIST
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 16 June 2000 at 0930am
B e f o r e :
THE HON MR JUSTICE DYSON

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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
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Charles Purle QC; Michael Sherry and Eamon McNicholas (instructed by Messrs Titmuss Sainer Dechert for the Appellants)
Kenneth Parker QC and Aidan Robertson (instructed by the Solicitor for HM Commissioners' of Customs and Excise for the Respondents)
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Judgment
As Approved by the Court

Crown Copyright ©








Mr Justice Dyson:

Introduction

1. McNicholas Construction Company Limited ("MC") appeals against the decision of the VAT and Duties Tribunal (Chairman Stephen Oliver QC) given on 12 January 1999 in relation to appeals against 24 assessments to VAT on MC for the three month periods from June 1990 to March 1996 inclusive. The assessments were all made on 21 March 1997. The aggregate amount of the assessed tax was £1,245,545 plus interest. The Tribunal allowed some of the assessments, with the result that the total amount of the assessed tax was reduced. It is MC's case that the Tribunal should have allowed the appeals in full, and discharged all the assessments of which complaint was made.

2. MC operates as a civil and public works contractor. One of its main activities is that of digging trenches for the laying of cable ducts. Part of its labour force comes from its own employed staff. But self-employed labourers, who usually work in gangs, form the much greater part of the workforce. As a result of investigations started in about 1993, the Commissioners came to the conclusion that companies and individuals purporting to be sub-contractors, whom they suspected to be bogus, were issuing VAT invoices to MC for services of providing labour that they had not provided. MC was claiming VAT relief as input tax of the amounts of VAT paid to these sub-contractors pursuant to the invoices. If in truth the sub-contractors were not making supplies to MC, there could be no obligation to pay them VAT, and no right in MC to claim VAT relief in respect of amounts purportedly paid as VAT.

3. Each of the 24 assessments was raised on the basis that in the opinion of the Commissioners MC had wrongly claimed input relief in respect of the VAT paid to 12 sub-contractors in all. The assessments were raised to recover the tax wrongly relieved in response to the input tax claims. Each assessment for each period was for an amount that was the aggregate of the input tax charged on the invoices issued in the names of the 12 sub-contractors.

4. The assessments for the periods 6/90 to 12/93 required the Commissioners to prove fraud against MC, since they were extended time-limit assessments made outside the normal 3 year time-limit for assessment to VAT. It was the Commissioners' case that MC was party to 3 frauds directed at the Commissioners. The first was supported by an organisation run by a Mr Christopher Lee, and was based on Hi-Tech House, Wembley. In the course of this fraud, VAT invoices were issued to MC in the names of 9 alleged sub-contractors. The second centred on the activities of Mr McHugh (who was employed as a project manager by MC): this related to the production of VAT invoices to MC in the names of 2 alleged sub-contractors. The third alleged fraud concerned the activities of a Mr Cassidy. Cassidy invoiced MC for consultancy services in finding labour purportedly supplied by the 11 alleged sub-contractors who were the subject of the first and second frauds.
5. The Commissioners' case before the Tribunal was that the steps in the fraud were as follows (see paragraphs 32-38 of the Decision). They started typically with the registration for VAT of individuals, whose businesses were ostensibly those of subcontractors. In some cases, the registration of an already VAT registered individual was used. In all cases, the person running the fraud, for example Mr Lee, operated and maintained a bank account in the name of the alleged subcontractor. MC paid into the bank account the amount shown as payable to that subcontractor in the relevant Certificate of Payment to Subcontractor for the services allegedly supplied by the subcontractor in the previous week. Payments were exclusive of VAT. The person running the fraud would arrange to withdraw the amounts required to pay the gangs whose services had allegedly been supplied the previous week. The amounts required to pay the gangs (and to make other disbursements) were a known percentage, usually 86%, of the amount paid into the bank account. The weekly withdrawals were transmitted to the sites, and used to pay the gangs and labourers. Periodically, VAT invoices w...
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