In HMRC V Pacific Computers Ltd8, the Upper Tribunal (UT) has concluded that the First-tier Tribunal (FTT) made errors of law that had been material to the outcome of a taxpayer’s appeal in a case involving missing trader intra-community (MTIC) fraud.


The appellant appealed to the FTT against HMRC’s rejection of its claim to recover input VAT in the VAT accounting period 09/06.

By the time of the hearing before the FTT, the appellant had accepted that in respect of each relevant transaction there had been a fraudulent evasion of VAT but denied any knowledge of such fraud. Accordingly, the only issue before the FTT was whether HMRC had proved, on the balance of probabilities, that the appellant either knew, or should have known, of the fraud.

HMRC relied on, amongst other things, a schedule of money movements compiled in relation to a criminal investigation from which an HMRC officer had extracted entries relevant to transactions carried out by the appellant, from which it submitted that knowledge could be inferred. The appellant did not challenge this evidence.

In allowing the appeal, the FTT said that it had not attached much weight to the evidence which had not been tested in cross-examination, including the schedule of money movements, that it preferred the evidence of the appellant’s witnesses, and that the most likely explanation for the appellant’s transactions was that it had been an innocent party who knew nothing of the fraud.

HMRC appealed to the UT.

UT’s decision

Before the UT, HMRC argued that the FTT had:

  • given insufficient weight to the evidence of some of its witnesses, whose evidence had been agreed
  • erred by disregarding the case officer’s evidence and schedule
  • erred by purporting to find “such facts as are necessary” to justify the rejection of HMRC’s assertions.

The UT allowed HMRC’s appeal and remitted the case to the FTT with a direction that it be re-heard by a fresh panel.

In the view of the UT, where evidence was not in dispute it had to be accorded full weight and not partial weight. To do otherwise, on the basis that the evidence had not been tested by cross-examination, was an error of law on the part of the FTT.

The FTT had also erred in refusing to accept HMRC’s schedule and in failing to give it significant weight. The case officer’s evidence as to the provenance of the materials on which the schedule had been based had been before the FTT in the form of an unchallenged witness statement.

The UT was critical of the FTT’s failure to comply with its duty to provide adequate reasons for its decision. A statement by the FTT that it found “such facts as are necessary” to support other findings or determinations was not itself a finding of fact and was contrary to the duty to give reasons.

Although in making a multi-factorial assessment it was not necessary for the FTT to specify what weight it gave to each item, it was necessary for the decision to contain a summary of the FTT’s basic factual conclusion and a statement of the reasons that had led it to reach that conclusion. The FTT had not satisfied this basic test.

The UT concluded that the FTT had failed properly to examine the evidence pertinent to the claim to recover input VAT. It had effectively closed its mind to a material part of HMRC’s evidence that had not been challenged by the appellant. It had misunderstood HMRC’s case and accordingly had asked itself the wrong question in relation to the evidence of orchestration and contrivance. The FTT’s failure to properly address, by reference to the available evidence, HMRC’s submissions regarding the link between the evidence of fraudulent behaviour by the other companies in the chain and the appellant’s knowledge, was an error of law.


Although litigation before the FTT is less formal than litigation before the High Court and above, this decision is a timely reminder that basic rules of evidence cannot be entirely disregarded. Where evidence is unchallenged and accepted by one party, as was the case in this instance, the FTT must give proper weight to such evidence in reaching its decision.

This decision also confirms that the FTT must give adequate reasons for the decision it reaches, whether in the context of a substantive appeal or a case management hearing. Parties to litigation are entitled to know the reasoning of the tribunal or court concerned so that they can take appropriate legal advice and decide whether there are grounds for appealing the decision in question.

A copy of the decision can be found here.