In Beigebell Limited (No. 2) v HMRC [2024] UKUT 382 (TCC), the Upper Tribunal (UT) found that purchases of memory cards were connected to fraud, which the taxpayer should have known about, causing its claim for input tax to be denied.
Where a taxpayer seeks to claim input VAT on transactions which they knew or should have known, were connected with the fraudulent evasion of VAT, HMRC can deny input VAT recovery under the Kittel principle.
In 2015, Beigebell Limited (No. 2) (B Ltd) purchased memory cards from a single supplier and sold these on to Hi View Trading SL (HVT).
- B Ltd claimed input tax in relation to these purchases.
- HMRC refused to make repayments of input tax totalling £144,628 and issued a notice of assessment for £3,647 on the basis that the transactions were connected to a fraudulent defaulting trader or contra trader.
- The taxpayer appealed to the First Tier Tribunal (FTT), which found that B Ltd knew that certain purchases were from a supplier which was connected to fraud under the Kittel test and dismissed the appeal.
- The taxpayer appealed to the Upper Tribunal (UT).
The UT agreed with the FTT's findings, whilst there were two errors in law these did not materially impact the decision.
- Various factors pointed to transactions being contrived. These included:
- The departure from the B Ltd's normal trade practice and pattern,
- The lack of contracts,
- Anomalies regards HVT’s terms and conditions,
- The currency of the deals being in Euros (although ODL and Beigebell were UK based),
- The length of the supply chains,
- The lack of insurance cover,
- B Ltd's higher mark-up not being commercial,
- The fact HVT was prepared to pay upfront before dispatch of goods even though it had not traded with B Ltd before.
- Issues in relation to inspections and deliveries,
- The fact that the goods were shipped direct to Poland (and not to Spain), and
- No requests for evidence of delivery were made.
- B Ltd's role as broker and the improbability that such orchestrated transactions would involve an unknowing party.
- The director and therefore B Ltd had actual knowledge that the transactions were connected to fraud and if he did not have actual knowledge, he had “blind eye” knowledge of the transactions’ connection to fraud.
- There was a lack of commercial reality, the director should have questioned the transactions.
- The deal was at a level at which the director should have known that the "only reasonable explanation" was that the transactions were connected with fraud.
The UT dismissed the appeal.
Useful guides on this topic
VAT fraud: What is the Kittel principle?
What is the VAT Kittel principle? What happens when the Kittel principle applies? What tests do HMRC and the tribunals apply? How can I protect my business?
VAT
Practical Tax Guides to VAT for the SME adviser and owner.
External Links
