W. Reilly Limited v The Commissioners for HMRC

W. Reilly Limited v The Commissioners for HMRC

HMRC failed to establish, on the balance of probabilities and having regard to objective factors, that the appellant should have known its transactions with Simplify and SMP were connected with fraudulent evasion of VAT. The appellant's due diligence and operational controls were reasonable for a business of its size and sector, and there were no circumstances that would have alerted it to the fraud. The VAT assessments were made within the statutory time limit, but the substantive test under Kittel was not met. Accordingly, the denial of input tax and the related penalty were not justified.

Parties
Appellant: W. Reilly Limited; Respondents: The Commissioners for His Majesty’s Revenue and Customs
Jurisdiction
England and Wales
Judgment Date
28 April 2026
Procedural Posture
Tax Appeal / Judgment
Outcome
Appeal allowed
Legal Topics
Value Added Tax, Input Tax Deduction, Fraudulent Evasion of VAT, Statutory Time Limits, Due Diligence, Penalties
Tax Law Value Added Tax Input Tax Deduction Fraudulent Evasion of VAT Statutory Time Limits Due Diligence Penalties

Case Brief

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Parties

W. Reilly Limited

Appellant

The Commissioners for His Majesty’s Revenue and Customs

Respondents

Procedural Posture

Tax Appeal / Judgment

Legal Issues

  1. 1 Whether HMRC issued VAT assessments within the statutory time limit under s 73(6)(b) VATA
  2. 2 Whether the appellant should have known its transactions were connected with fraudulent evasion of VAT by its suppliers under the Kittel test
  3. 3 Whether a related penalty was due

Ratio Decidendi

HMRC failed to establish, on the balance of probabilities and having regard to objective factors, that the appellant should have known its transactions with Simplify and SMP were connected with fraudulent evasion of VAT. The appellant's due diligence and operational controls were reasonable for a business of its size and sector, and there were no circumstances that would have alerted it to the fraud. The VAT assessments were made within the statutory time limit, but the substantive test under Kittel was not met. Accordingly, the denial of input tax and the related penalty were not justified.

Court Disposition

Appeal allowed

Orders

  • The appellant is entitled to deduct/recover the disputed input tax.
  • The VAT assessment and related penalty are set aside.