UK Tax Tribunal Absolves Exporter of Hefty VAT Fines

A U.K. tax tribunal absolved exporter Lynton Exports of paying nearly $12 million in value added tax after finding that the company couldn't be held liable for its new customer's alleged tax evasion scheme. The Tax Chamber of the First-tier Tribunal ruled against HM Revenue and Customs, finding no convincing evidence to back the position Lynton had actual knowledge that its shipments of soft drinks and sweets were connected to the evasion of VAT.

Lynton is a "long-established export trader," dealing in the repacking of British specialty goods. In 2014, the company took on new business by selling confectionary items and soft drinks to Irish customers. The new business doubled the company's revenue but yielded only a small jump in profit. HMRC alleged that Lynton's revenue "was not legitimately sourced" and that the Irish customers engaged in a VAT evasion scheme.

Tribunal Judge Peter Kempster held that the differences between Lynton's long-standing export activities and its new Irish exports venture "are not as stark as suggested by HMRC." The issue for HMRC and the tribunal then becomes one of determining how much Lynton knew of this alleged scheme. "We find there is no convincing evidence to support HMRC’s contention that the Company had actual knowledge that the deals ... were connected with fraudulent evasion of VAT," Kempster said. The tribunal said there is no evidence to back the position that Lynton should have known the deals were linked to the fraudulent evasion of VAT.