TC09617 - [2025] UKFTT 01018 (TC)

In E Buyer UK Ltd v HMRC [2018] 1 WLR 1524, a summary of the applicable law, at [90], included, amongst other things, the principle that in all Kittel cases, HMRC must give properly informative particulars of the allegations of both actual and constructive knowledge by the taxpayer.

In Ammanford Recycling Ltd v HMRC [2023] UKUT 302 (TCC), HMRC were arguing that a company (as opposed to an individual) had actual knowledge of connection with VAT fraud for purposes of the Kittel principles. The parties accepted that where the appellant is a company, HMRC do not have to show that an identified individual had the requisite knowledge; it is enough that someone acting on behalf of the company must have had actual knowledge that the transactions were connected with VAT fraud. HMRC had however indicated to the Tribunal at the hearing, that it was open to them, and even, they said, that they ought to, put to the appellant’s witnesses in cross-examination, that the particular witness had actual knowledge the transactions were connected to fraud; but HMRC maintained that they need not identify, in advance, in their statement of case, that the witness had such knowledge. The taxpayer argued before the Upper Tribunal that the Tribunal had been wrong to agree with this.

The Upper Tribunal agreed with the taxpayer, and said at [47]:

The Upper Tribunal also made the point, at [53], that an allegation that someone had actual knowledge that a transaction was connected to fraud, is a serious one.

In Ulster Metal Refiners Ltd v HMRC [2017] NICA 26, the Tribunal had found fraud (in a supply chain) on a different factual basis from that put forward by HMRC (and HMRC did not apply for permission to change their pleadings during the course of the Tribunal proceedings). The Court of Appeal of Northern Ireland held that this was procedurally unfair; when a tribunal wished to find for a claimant on the basis of a ‘third man theory’, it had to inform the parties clearly of the ‘third man theory’ and then afford to the parties sufficient opportunity to respond to the new case and if necessary permit an adjournment to allow the parties time to make decisions about what further investigations they should carry out, what further evidence or disclosure they should seek, what further witnesses they should call and what further submissions they should make. Those steps were central to meeting the requirement of a fair hearing.