VAT & Fraud Knowledge
The First-tier Tribunal has dismissed an appeal in the One Call Consultants Ltd case, upholding HMRC's position in full on VAT fraud, input tax denial, and personal liability for the director involved.
The case turns on the Kittel principle - the established rule that a business is denied input VAT recovery where it knew, or should have known, that its transactions were connected to the fraudulent evasion of VAT. What makes this decision particularly significant is the tribunal's finding of actual knowledge, rather than the lower "should have known" threshold that is more commonly argued in Kittel disputes.
The tribunal's findings
The company was denied input VAT recovery of over £314,000. HMRC's case that the transactions were connected to VAT fraud was accepted in full.
The director's appeal against personal liability notices was also dismissed. The tribunal's reasoning confirms that the corporate structure provides no protection where a director has actual knowledge of the company's involvement in a fraudulent supply chain. Penalties in these circumstances can be substantial.
In addition, HMRC's decision to compulsorily deregister the company for VAT was upheld, on the basis that deregistration was necessary for the protection of the revenue.
What this means in practice
The finding of actual knowledge is the sharpest element of this decision. Where HMRC can establish that a director knew - rather than merely should have known - of the connection to fraud, the prospects of a successful appeal narrow considerably.
For businesses operating in sectors where supply chain fraud risk is elevated, the message is clear. Due diligence processes need to be genuinely substantive, properly documented, and kept under active review. Where records are inadequate or checks are superficial, that evidential gap can itself become a factor in HMRC's favour.
Advisers working with clients in higher-risk supply chains should ensure those clients understand both the VAT recovery risk and the personal exposure that can follow for individuals in control of the business.
