This was an appeal by the appellant against an assessment by HMRC for £274,198 for disallowed input tax on the grounds that the appellant knew or should have known that the transactions were connected to fraud. HMRC contended that under the principles set out in the case law, in particular, by the Court of Justice of the European Union inâ¯Axel Kittel v Belgium & Belgium v Recolta Recycling SPRLâ¯(C-439/04 and C-440/04) (Kittel), the appellant was not entitled to deduct the disputed tax for VAT purposes.
The appellant worked in the construction sector and employed its own staff but also engaged temporary agency staff. In the case of a supplier, Simplifyâ¯Limited, had not paid output tax due to HMRC, was assessed for underdeclared output tax, was placed into liquidation and the outstanding debts remained unpaid. HMRC considered this to be fraudulent evasion.
