Best Cosmetics Limited v The Commissioners for HMRC

Introduction

1. The Appellant (“Best Cosmetics”) is appealing two post-clearance demand notices (“C18s”) in the total amount of £320,251.68, for VAT which the Respondents (“HMRC”) assert is unpaid and unaccounted for in relation to goods imported into the UK by Best Cosmetics between 28 January 2022 and 4 February 2023 (“the Period”). Late Appeal

2. On 28 November 2023 HMRC issued a decision letter, advising Best Cosmetics that C18s would be issued in the sum of £320,251.68 for the unpaid VAT. The C18s were subsequently issued by HMRC on 7 December 2023. Best Cosmetics requested a statutory review on 21 December 2023. HMRC issued its Review Conclusion Letter on 15 March 2024 upholding the decision to issue the C18s. Best Cosmetics then had 30 days from the date of the Review Conclusion Letter to submit its appeal. Best Cosmetics submitted its appeal to the Tribunal on 13 May 2024, almost a month late.

3. Best Cosmetics explained the reason for the lateness was that it had originally submitted its appeal on 15 April 2024. The Tribunal then notified Best Cosmetics on 10 May 2024 that the appeal was one day late so they would need to resubmit the appeal explaining why it was late, which they did on 13 May 2024.

4. HMRC do not object to Best Cosmetics making a late appeal. In the circumstances, and considering the overriding objective, it would not be a proportionate use of resources for the Tribunal to consider in detail whether or not to allow the appeal to proceed. The Tribunal therefore grants permission for this appeal to be admitted out of time. The Law

5. Section 1(1)(c) of the Value Added Tax Act 1994 (“VATA”)charges VAT on goods imported into the UK (“Import VAT”).

6. Section 1(4) of VATA provides that VAT on the importation of goods into the UK shall be charged and payable as if it were import duty.

7. Regulations 4 and 5 of The Value Added Tax (Accounting Procedures for Import VAT for VAT Registered Persons and Amendment) (EU Exit) Regulations 2019 (2019/60) allows the taxable person to account for Import VAT on its VAT return, referred to generally and in this decision as Postponed VAT Accounting (PVA).

8. Section 6 of the Taxation (Cross-border Trade) Act 2018 provides that: “(1) If a Customs declaration is made in respect of any chargeable goods, the person in whose name the declaration is made is the person liable to import duty in respect of the goods”

9. An Economic Operator Registration and Identification number (“EORI”) is a unique identification number issued by HMRC to businesses and individuals established in GB who are involved in customs activities. It is a mandatory identifier for customs clearance and is used to identify the name of the entity importing the goods being declared.

10. The burden of proof is on Best Cosmetics to show that the grounds of appeal on which it relies have been established and the standard of proof is the civil standard of the balance of probabilities. Background and facts

11. The documents to which I was referred are included in two electronic hearing bundles made up of 2,384 pages in total and an authorities bundle of 245 pages. I also had the benefit of each party’s written skeleton argument. The bundles included two witness statements for Best Cosmetics and one witness statement for HMRC. All the witnesses gave oral evidence at the hearing, were cross-examined and answered questions from the Panel. The witnesses for Best Cosmetics were Mr Sarok Bakhtyar Ali (“SBA”), Director of Best Cosmetics and Azim Girach (“Mr Girach”), of Motif Accounting Leics Ltd, Best Cosmetics accountants. The witness for HMRC was Officer Donna Robinson (“Officer Robinson”) of HMRC.

12. From all of the above I set out below the relevant background to this appeal and make the following findings of facts.

13. Best Cosmetics was incorporated and registered at Companies House on 8 March 2019. At that time the sole director was Mr Harem Bakhtyar Ali (“HBA”).

14. Best Cosmetics was registered for VAT with number 317 4669 83 from 11 March 2019.

15. SBA became a director of Best Cosmetics on 3 November 2020.

16. UK Best Cosmetics Ltd (“UK Best”) was incorporated and registered at Companies House on 5 March 2021. The directors on incorporation were HBA, SBA and Mr Karim.

17. UK Best was registered for VAT with number 383 7938 42 from 25 June 2021 when it also began trading.

18. Best Cosmetics did not make any taxable supplies after August 2021 and deregistered for VAT with effect from 28 September 2021. Best Cosmetics submitted its final VAT return for the period ending September 2021 on 4 January 2022.

19. SBA authorised FF Customs and Logistics Ltd (“FFCLL”) to be the Direct Customs agent for UK Best using the EORI number belonging to Best Cosmetics. SBA also authorised FFCLL to claim PVA.

20. FFCLL made 371 import declarations (“C88 import documents”) using Best Cosmetics’ EORI and claimed PVA for goods imported during the Period in the amount of £320,251.68 VAT. Approximately half of the C88s had Best Cosmetics’ name on them. The rest had the name of UK Best on them, but all had Best Cosmetics EORI on them.

21. During the Period, Best Cosmetics had already deregistered for VAT and was not making taxable supplies. Best Cosmetics could not therefore account for the postponed Import VAT through its VAT returns and it was no longer making taxable supplies.

22. UK Best obtained its EORI in May 2022, four months after the beginning of the Period.

23. By email dated 5 April 2023, Motif Accounting stated that Best Cosmetics had recently discovered the error in the VAT registration number being used by FFCLL and that: “Since we found this error, we are in touch with customs agents to update our VAT registration details in their records and file correct declaration with HMRC. They are processing our request and ensure to contact us if require further information.”

24. On the same date Officer Robinson asked for copies of the correspondence with HMRC referred to in the 5 April 2023 email. Best Cosmetics has never provided this.

25. On 23 November 2023, Best Cosmetics advised Officer Robinson, through Motif Accountants, that they had been unable to contact their previous accountants who had submitted the VAT returns for UK Best for the Period. Best Cosmetics was therefore unable to provide evidence that UK Best had accounted for the PVA in its VAT returns.

26. UK Best deregistered for VAT with effect from 16 December 2023 and it was subsequently struck off the register on 14 October 2024 and dissolved on 22 October 2024. Submissions

27. Best Cosmetics submit that: (1) Best Cosmetics’ name and EORI were used on the imports in error and that they were in fact imported by UK Best who also paid for the goods. (2) UK Best had used the same freight agents and suppliers as Best Cosmetics and FFCLL had failed to change the EORI from that of Best Cosmetics when UK Best took over the business from Best Cosmetics; (3) UK Best has accounted for the PVA in its VAT returns. (4) In any event there is no loss of VAT because under the PVA mechanism, import VAT is accounted for by declaring an equivalent amount as both output tax (box 1) and input tax (Box 4) on the same VAT return so the import VAT is cancelled out. (5) The Customs system should have flagged that the EORI number being used was that of a non-VAT registered company. If it had, then the error could have been corrected. (6) The introduction of customs declarations and PVAs was a new and complex process for small businesses, who were forced to rely on third party agents. There was also a lack of clear guidance from HMRC.

28. HMRC submit in response: (1) UK Best was not authorised as an Economic Operator and so did not receive its EORI number until May 2022. UK Best did not therefore have an EORI to provide to FFCLL until four months into the Period. Also there is no evidence that it provided its EORI number to FFCLL once it had received it. (2) Best Cosmetics has not provided any evidence that UK Best has accounted for the Import VAT on its VAT returns and Best Cosmetics could not account for the Import VAT because it was no longer registered at the time of the imports. Further the directors have allowed the dissolution of UK Best without evidencing that that company had accounted for the VAT nor have they provided any reason why Best Cosmetics, which has two common directors with UK Best, is unable to obtain UK Best’s VAT records from its previous accountants. (3) Officer Robinson reviewed UK Best’s VAT returns for the relevant periods and the box totals for two of the boxes where the postponed VAT should have been accounted for were less than the postponed VAT for that period. (4) If it was an error, there is no evidence that Best Cosmetics or UK Best attempted to correct the error at any point over the period covered by the C18s. (5) The import VAT is only cancelled out if is entered on a VAT return and the goods on which the Import VAT is due are used to make taxable supplies. There is no evidence that the good on which the Import VAT was incurred were used to make taxable supplies or that the Import VAT was accounted for on a VAT return. Conclusions

29. SBA was a director of both Best Cosmetics and UK Best. As such he authorised FFCLL to use the EORI for Best Cosmetics on imports and to claim PVA. Best Cosmetics is therefore liable to account for the postponed VAT in its VAT returns.

30. The entries using the EORI for Best Cosmetics with which I am concerned started in January 2022, at which point Best Cosmetics had already deregistered for VAT and ceased making taxable supplies. Best Cosmetics could not therefore account for the postponed VAT in its VAT returns.

31. The C18s were correctly issued to Best Cosmetics as it was their EORI that was used on the C88s submitted by FFCLL and, pursuant to section 6 of the Taxation (Cross-border Trade) Act 2018, it is the person in whose name the declarations are made who is responsible for the Import VAT.

32. Best Cosmetics has not provided any evidence that UK Best has accounted for the postponed VAT in its VAT returns and has not provided any satisfactory explanation of why it has been unable to obtain the accounts or VAT returns from UK Best’s accountants. SBA and HBA were directors of UK Best and Best Cosmetics and so this evidence is within their control.

33. UK Best would have had access to its monthly postponed import VAT statement to enable it to account for its postponed import VAT on its VAT return. UK Best would have seen that the imports that had been made using Best Cosmetics’ EORI on the C88s were missing from the statements.

34. Officer Robinson’s review of UK Best’s VAT returns found that the postponed VAT had not been accounted for on UK Best’s VAT returns.

35. In the ordinary course of events where import VAT is postponed on goods which are then used to make taxable supplies, the entry of the postponed VAT on the VAT return cancels itself out. However in this appeal there is no evidence that the imported goods on which the import VAT was postponed were used to make taxable supplies or accounted for on any VAT returns.

36. It is unfortunate that HMRC’s systems did not flag that Best Cosmetics was not VAT registered earlier. However it is ultimately the responsibility of the importer to ensure that the correct information is provided to the Direct Agent and included on the customs declarations and to check that the monthly PVA statement is accurate.

37. I have seen documentary evidence from FFCLL showing that they were provided with authorisation from SBA to use PVA with Best Cosmetics VAT number in February 2023 when that number had been deregistered since September 2021. In addition from January to May 2022, UK Best did not have an EORI so it could not have used PVA.

38. I have not seen any evidence to show that Best Cosmetics instructed FFCLL to cease using their EORI or VAT number once it ceased to be VAT registered.

39. Had Best Cosmetics been able to evidence that the postponed Import VAT had been accounted for on UK Best’s VAT return then this would have supported their assertion that there was no actual VAT loss to HMRC. However Best Cosmetics were unable to provide this evidence and I was not given a satisfactory reason why Best Cosmetics had been unable to provide this evidence. Further Officer Robinson’s evidence, supported by printouts of UK Bests VAT returns summaries, is that the Import VAT was not included in UK Best’s VAT returns.

40. I therefore find that, for all the reasons set out above, on a balance of probabilities neither Best Cosmetics nor UK Best accounted for the postponed Import VAT in their VAT returns and the postponed Import VAT remains due and owing.

41. The appeal is therefore dismissed. Right to apply for permission to appeal

42. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. Release date: 06th FEBRUARY 2026