Red Rose Payroll (RRP) appealed to the FTT against HMRC’s application to have the company deregistered for VAT as well as a VAT assessment for £7,191,003 and a penalty for £2,157,300.

HMRC were under the impression that RRP ‘should have known that it was participating in transactions connected with the fraudulent evasion of VAT’. If HMRC failed to prove this then the penalty would have to also be dismissed said Judge Malek.

The tribunal had two issues to determine, the first was whether RRP knew or should have known that the transaction in question were connected with the fraudulent evasion of VAT and secondly whether the transaction chains were part of an orchestrated overall scheme to defraud the revenue.