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image of bank vault | accountingweb | Gold bullion tax avoidance scheme - UT overturns FTT decision
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Taxpayer vaults to success in £14m bullion case

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A record-keeping penalty of £14m was overturned on appeal by a tax avoidance scheme in a case concerning delivery of the gold bullion.

16th May 2024
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Regular readers of AccountingWEB might feel a sense of déjà vu when reading the upper tribunal’s judgment in Qubic Advisory Services Limited vs HMRC [2024] UKUT 00106. The taxpayer, Qubic (formerly Asset Hound Limited), was a party to a gold bullion/employee benefit trust scheme struck down by the first tier tribunal (FTT) on the basis that it was “highly contrived” (in Wired Orthodontics Limited Limited vs HMRC [2023] UKFTT 17 (TC). 

No karat, all stick

Qubic’s role in that scheme had been to acquire and sell gold bullion to scheme participators and their employees. HMRC formed the view that those activities were subject to the record-keeping requirements that apply to deliveries of gold bullion. Specifically, reg 31(2) of the VAT Regulations 1995 requires taxpayers to maintain the records specified in HMRC’s Public VAT Notice 701/21 in circumstances where a taxpayer has delivered or made gold available for delivery to its customer. It appears to have been common ground that Qubic didn’t hold the records required by the VAT notice. 

HMRC assessed Qubic to eye-watering penalties of £14,821,380 under section 69A of the VAT Act 1994 for failing to comply with the regulations. HMRC argued that Qubic’s arrangements made it possible for a customer to take physical delivery of the gold and that the record-keeping requirements in the VAT notice therefore applied. Qubic argued that none of the arrangements with its customers involved the possibility of delivery and appealed to the FTT. 

Panned by the FTT

The FTT found in favour of HMRC. It was particularly influenced by the terms and conditions (T&Cs) of the third-party vault that held the gold and which both Qubic and its customers had signed up to as part of the scheme. It concluded that the T&Cs made it clear that the gold was available for collection by Qubic’s customer. 

On that basis, the FTT held that the additional record-keeping requirements in the VAT notice applied. Qubic had not complied with those requirements and had breached the VAT regulations that gave the VAT notice the force of law. A penalty was therefore due under section 69A VATA 1994 at a rate of up to 17.5% of the value of the bullion transactions. 

Non-vault claim

Qubic appealed successfully to the UT. The UT found that the FTT hadn’t paid sufficient attention to a waiver entered by Qubic on behalf of its clients with the vault. Under the terms of the waiver, Qubic’s clients gave up their right to withdraw the gold from the vault. The UT concluded that Qubic’s clients had no right to obtain possession of the gold. It followed that the bullion was not delivered or made available for delivery to the customer, the additional record-keeping requirements did not apply, and no penalty was due. 

The UT was reluctant to criticise the FTT for overlooking the waiver. It noted that the waiver hadn’t been referred to in the taxpayer’s skeleton argument for the appeal before the FTT although it had been mentioned by each party’s counsel in submissions. The UT held in the circumstances that the FTT had not been made fully aware of the waiver’s significance. Nevertheless, overlooking it had been an error of law. The UT remade the FTT’s decision by allowing the appeal and setting aside the penalties. 

Au-ver the top?

There can be little doubt that HMRC thought it had struck gold – £14m is a steep price to pay for not holding adequate records. One of Qubic’s grounds of appeal appeared to be that the FTT failed to consider whether the penalty was proportionate but, given the UT’s finding on the waiver, the UT did not need to consider that argument. The case nevertheless demonstrates that good record-keeping is a golden rule for any business managing its VAT affairs.

Replies (5)

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By Paul Crowley
16th May 2024 17:54

HMRC should look to challenge the avoidance scheme, not some trivial record keeping matter.

Thanks (4)
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By anthony charles taylor
20th May 2024 07:59

Being a thicky does that mean the tax payers won on the tax saved?

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Replying to anthony charles taylor:
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By Paul Crowley
20th May 2024 12:20

There was no tax.
HMRC were trying to collect a penalty for bad bookkeeping. Probably because the tax scheme was difficult to challenge.

I think HMRC thought that they would try a clever scheme of their own and fell flat on their face.
'There can be little doubt that HMRC thought it had struck gold – £14m is a steep price to pay for not holding adequate records.'

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By JamesDS
20th May 2024 10:15

Gold puns, lol

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By JamesDS
20th May 2024 10:15

Gold puns, lol

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