VAT Assessments

Our expertise in relation to VAT investigations is extensive and includes:

• Kittel Principle investigations, penalties and assessments
• MTIC investigations, penalties and assessments
• Criminal proceedings for VAT fraud

We assist corporate and individual clients as follows:

• Correspond, meet and negotiate with HMRC on your behalf
• Represent you in relation to a VAT enquiry or investigation
• Prepare representations to HMRC to seek an Informal Review and a Formal Internal Review of any VAT Notice of Assessment & VAT Penalty Notice raised by HMRC
• Prepare an Appeal against a VAT Assessment & Penalty Notice and represent you in proceedings before the First-tier Tax Tribunal and Upper Tribunal
• Represent you in criminal proceedings when HMRC allege VAT fraud has taken place including Missing Trader Intra Community fraud, (‘MTIC’) and Missing Trader Fraud, and Carousel VAT fraud.
• Advice and assistance on Late Payment Penalty Scheme for VAT & Self Assessment Tax

We are experienced in conducting cases where HMRC has issued a VAT Notice of Assessment to an individual or company under the Kittel Principle.

If you have received a VAT Notice of Assessment, HMRC will usually confirm in correspondence to you if the decision has been based on the Kittel Principle.

The Kittel Principle derives from a European Court of Justice (‘ECJ’) judgement in the case of Axel Kittel & Recolta Recycling SPRL in 2006.

The case sets out the Kittel Principle that a taxpayer who claims input tax on transactions which:

he knew or

should have known

were connected with fraudulent evasion of VAT

is to be denied his entitlement to the right to claim that input tax.

The reasoning behind this is explained by the ECJ as follows:

‘…a taxable person who knew or should have known that, by his purchase, he was taking part in a transaction connected with fraudulent evasion of VAT must….be regarded as a participant in that fraud, irrespective of whether he profited by the resale of the goods.

That is because in such a situation the taxable person aids the perpetrators of the fraud and becomes their accomplice.’

We have represented many clients who have been ‘caught up’ in such a scenario and accused of being participants in the fraud when in fact they have had an unblemished record of trading up to that point.

In general terms in order for the Kittel Principle to apply, three things need to exist:

1. Was there fraudulent evasion of VAT?
2. Was the transaction ‘connected with’ that fraudulent evasion of VAT?
3. Did the taxable person, when he entered into the transaction, know or should have known that it was ‘connected with fraudulent evasion of VAT’?

HMRC are usually capable of demonstrating points 1 & 2 above by producing evidence of the tax loss caused by another trader in the trading chain and producing evidence of the trading chain which demonstrates that the taxpayer was ‘connected with’ that trading chain.

In most cases the contentious issue is point 3 above as the issue of whether a taxable person ‘knew’ or ‘ought to have known’ is often based on HMRC inviting certain inferences to be drawn from the existence of certain facts and/or documents.

We are familiar with the ‘hallmarks’ of fraud that HMRC will usually claim are present in such transactions and have substantial experience successfully presenting the counter-argument to such assertions.

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Yes. We are one of the leading firms in the country handling VAT cases based on MTIC, Missing Trader and carousel allegations.

Our track record dates back to 1997 and we have the substantial advantage of having conducted many high profile VAT cases both in the criminal courts and in the civil courts including the Tax Tribunals.

If you have received a Notice of VAT Assessment based on such allegations, we have considerable expertise in this area to assist you.

We assist many UK traders who have been innocently caught up in fraudsters’ carousel trading chains and, as a result, face a heavy tax liability under the Kittel Principle long after the fraudulent traders in the chain have disappeared.

MTIC and Missing Trader fraud come in many guises and can involve complex trading chains and contra-trading chains which are often designed to avoid scrutiny by HMRC.

A simple form of the fraud is for a taxable trader to ‘go missing’ after having collected VAT on its sales and fails to account for that VAT to HMRC.

MTIC fraud involves taxable traders exploiting the laws relating to cross border transactions within the EU due to zero rated supplies on export and the ability to seek VAT repayment claims from HMRC.

Carousel frauds involve the same product or commodity being passed around a number of traders with the goods (at least in part) often returning to the original taxable supplier. Evidence of such transactions is often adduced by HMRC to demonstrate the alleged ‘artificiality’ of the trading.

Usually, the ‘missing’ or ‘defaulting’ trader in the trading chain has disappeared by the time the MTIC/carousel fraud is uncovered by HMRC and the VAT loss has been both identified and quantified.

As the defaulting trader can longer be traced by HMRC, its attention turns to other taxable traders in the trading chain. These are usually the ‘innocent’ traders who have not been directly responsible for the VAT loss in the trading chain.

Such companies are targeted by HMRC under the Kittel Principle on the basis that the taxable trader, when he entered into the transaction, knew or ought to have known that it was connected to fraudulent evasion of VAT.

The innocent companies caught up in such trading chains are often served with a Notice of VAT Assessment & Penalty Notice by HMRC.

We can assist companies challenge the VAT Assessment & Penalty Notice by way of pursuing the Review procedure available via HMRC (Informal Review and Formal Internal Review) as well as by way of an Appeal to the First-tier Tax Tribunal.

HMRC target the remaining companies in the trading chain on the basis that the trader knew or ought to have known the transaction was connected to fraud and therefore the trader was not entitled to the right to deduct its input tax.

The effect is to encourage legitimate traders to conduct appropriate due diligence checks before entering into a trading arrangement with another company. The trader is encouraged to check both the legitimacy of its new trading partner and the legitimacy of the transaction being proposed.

We can assist corporate and individual clients prepare a defence to such VAT allegations by HMRC.

What is usually required is evidence that the trader has taken all precautions reasonably required of the trader to ensure that the transaction is not connected with fraud.

However, the courts have ruled that even where a trader has taken all reasonable precautions to guard against the transaction being connected to fraud, the trader could still be liable on the basis that the circumstances of the transaction should have alerted the trader to the fact that it could be fraudulent.

Each case will be dependent on its own facts and we are able to provide clients with clear and concise advice regarding the merits of their case as well as:

• Prepare written representations to HMRC for an informal review
• Prepare written representations to HMRC for a formal internal review
• Challenge the VAT Assessment and Penalty Notice by an Appeal to the First-tier Tax Tribunal

Our criminal VAT fraud department is consistently recognised by the Legal 500 and Chambers UK as a leading specialist in the country.

We have an enviable record of defending MTIC cases in courts throughout England & Wales as we have been involved in many of the largest prosecutions ever brought by HMRC over the last two decades.

For further details of the MTIC cases we have conducted please follow this link to our ‘Serious Fraud, VAT & Tax’ webpage.

The expert lawyers at Kangs are available to assist you. We can arrange initial consultations in person, by video call or telephone.

Please contact one of our experts listed below or contact us at:

E: info@kangssolicitors.co.uk

T: 0333 370 4333