In Kendrick v HMRC [2020] TC 07515, the First Tier Tribunal (FTT) held that tobacco 'retail' did not breach the VAT registration threshold, as alleged by HMRC. He should not have had to register for VAT.

  • The appellant was selling illegally imported tobacco.
  • Between 2009–2013, HMRC seized a number of tobacco packages either addressed or belonging to Mr Kendrick.
  • HMRC made a best judgement assessment of the sales and concluded that Mr Kendrick reached the VAT registration threshold on 8 January 2010. He should have registered for VAT from 1 March 2010. HMRC issued a VAT assessment for £220,000 and charged a penalty of a similar amount.
  • Mr Kendrick admitted that he had sold some illegally imported tobacco to friends and family but claimed he did not breach the VAT registration threshold.
  • Mr Kendrick appealed to the FTT.

Based on the evidence provided, the FTT was satisfied that Mr Kendrick did not reach the VAT registration threshold by 31 January 2010 and hence should not have registered for VAT from 1 March 2010. His appeal was allowed.

It was observed that Mr Kendrick may have breached the threshold at a later date and HMRC may consider taking subsequent action against him.


This case highlights that even illegal transactions are subject to VAT. Charging VAT on illegal transactions might give the impression that HMRC benefits from criminal activities. HMRC's viewpoint is that if illegal transactions are not subject to VAT, traders in illegal goods will benefit as their products will be 20% cheaper than their competitors’.


Registering for VAT (subscriber)
When do I need to register for VAT? When do I need to start charging VAT? What penalties might HMRC issue for late notification?

Is voluntary VAT registration worthwhile?
If a business has a turnover below the VAT registration threshold and is dealing with customers who are all VAT registered it may be worth registering for VAT on a voluntary basis.

VAT registration CPD (subscribers)

External links

Kendrick v HMRC [2020] TC 07515