TC09641 - [2025] UKFTT 01115 (TC)

CF Booth Ltd v HMRC [2022] UKUT 1565 (TCC) (“Booth”) concerned an appeal by a company against a penalty for inaccuracies in VAT returns, in circumstances where the (First-tier) Tribunal had previously decided (in CF Booth Ltd v HMRC [2017] UKFTT 813 (TC)) that the company knew or should have known that a number of its transactions were connected to the fraudulent evasion of VAT. This was not, therefore, a case in which the parties to the penalty appeal were different from the parties to the earlier First-tier Tribunal decision. It is, however, relevant here because the Upper Tribunal considered the extent to which an earlier Tribunal decision on Kittel knowledge determines whether the taxpayer’s conduct was deliberate for the purposes of an inaccuracy penalty.

In Booth, the company argued that a finding of dishonesty was an essential element of deliberate inaccuracy for the purposes of the penalty assessment. On this point the Upper Tribunal held:

“[41] We disagree. There is in our judgment no requirement for HMRC to plead or prove dishonesty when seeking to impose a penalty for deliberate inaccuracy under Sch 24 FA 2007. As the FTT held in Auxilium, deliberate inaccuracy occurs when a taxpayer knowingly provides HMRC with a document that contains an error with the intention that HMRC should rely upon it as an accurate document. We do not consider that anything said by the Supreme Court in Tooth calls that test into question.”

The Upper Tribunal’s decision then continues as follows:

“[42] Mr McDonnell [counsel for the appellant company] also submitted that prior to the release of the 2017 Decision the required mental or conscious element in relation to deliberate inaccuracy had not been established. Prior to the 2017 Decision, he said that the position was uncertain or 'inchoate' as regards the Appellant's entitlement to claim input tax. Mr McDonnell also argued that HMRC would need to prove that the Appellant's employee who completed and filed the VAT returns knew that they were inaccurate.

[43] We have no hesitation in rejecting those submissions. In the present case, the FTT in the 2017 Decision held that the Appellant knew that its transactions, for which it was claiming input tax and zero-rating, were connected with fraud. Those findings have not been appealed. As the FTT correctly held at [40] of the 2020 Decision, this meant that the Appellant never had any entitlement to an input tax deduction as a result of the application of the Kittel principle. The same must apply in relation to the Appellant's claims for zero-rating of the MGB transactions. Because it knew, before submitting its returns, that its transactions were connected with fraud, the Appellant also knew that it had no entitlement to an input tax deduction or, in relation to the MGB transactions, an entitlement to zero rating. The FTT's 2017 Decision therefore simply identified and confirmed the Appellant's existing state of knowledge – a state of knowledge which disqualified it from any entitlement to an input tax deduction (and to zero rating in respect of the MGB transactions) in the first place. The FTT's decision on this point is, in our view, unimpeachable.”