Profanities, Paperwork & Proportionality

If you’re in business, especially in sectors like scrap metal, then the SK Metals case is worth a look – whereby the First Tier Tribunal has overturned a large HMRC penalty, especially when the case involves some very colourful language on supplier invoices!

The FTT did not just question HMRC’s approach but also issued a reprimand regarding both the delay in investigating the fraudulent party and the attempt to shift investigative responsibilities onto the taxpayer. The judgment serves as a reminder to HMRC of its own responsibilities in fraud detection and the need for evidence-based, proportionate action.

With regard to the specifics, SKM had its input VAT claims denied and were hit with penalties by HMRC. HMRC considered that its supplier was involved in VAT fraud, pointing to “red flags” in the paperwork and finding that SKM should have known better.  Notably, three invoices (out of 109) from the supplier included profanities like “f#ck abouts” and “another f#cking amendment.”

There were also undated invoices and duplicate invoice numbers. HMRC argued these irregularities should have alerted SKM to fraud.

The FTT wasn’t convinced. They found that, while the invoices were “littered with issues,” this wasn’t enough to prove SKM actually knew, or should have known, about fraud.

Key points include:

• Invoice errors ≠ fraud: Mistakes, even profanities, on invoices might be unprofessional, but they’re not uncommon. Sometimes, honest businesses are just a bit chaotic with paperwork.

• Context matters: SKM traded with the supplier for over five months, making 109 transactions worth over £3 million, paid through UK bank accounts, and did some due diligence.

• No actual or constructive knowledge: The Tribunal found SKM’s director to be a credible witness. He focused on the goods and pricing, not the language on the invoices. When his accountant raised concerns about invoice sequencing, SKM addressed them with the supplier.

The Tribunal allowed SKM’s appeal, overturning the denial of input VAT, the penalty, and the personal liability notice.

Invoice irregularities, even with “industrial language,” weren’t enough to prove knowledge of fraud. This case is a win for common sense and proportionality in VAT compliance.