Wholesale Distribution Limited v The Commissioners for HMRC

Wholesale Distribution Limited v The Commissioners for HMRC

The appellant, through its sole director, failed to exercise sufficient due diligence and was seriously negligent in its conduct of the denied deals. The Tribunal found that the appellant should have known that the transactions were connected with the fraudulent evasion of VAT. The appellant’s approach to due diligence was perfunctory and cavalier, and the evidence established that the only reasonable explanation for the transactions was their connection to fraud. Actual or blind-eye knowledge was not established, but the objective standard was met for denial of input tax under the Kittel principle.

Parties
Appellant: Wholesale Distribution Limited; Respondents: The Commissioners for His Majesty’s Revenue and Customs
Jurisdiction
England and Wales
Judgment Date
21 June 2024
Procedural Posture
Tax Appeal / First Tier Tribunal (tax Chamber) Judgment
Outcome
Appeal dismissed
Legal Topics
Value Added Tax (vat), Input Tax Denial, Kittel Principle, Fraudulent Evasion, Due Diligence, Knowledge Requirement
Tax Law Value Added Tax (vat) Input Tax Denial Kittel Principle Fraudulent Evasion Due Diligence Knowledge Requirement

Case Brief

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Parties

Wholesale Distribution Limited

Appellant

The Commissioners for His Majesty’s Revenue and Customs

Respondents

Procedural Posture

Tax Appeal / First Tier Tribunal (tax Chamber) Judgment

Legal Issues

  1. 1 Whether the appellant was entitled to deduct input VAT on transactions connected to VAT fraud
  2. 2 Whether the appellant actually knew, had blind-eye knowledge, or should have known of the connection to fraud

Ratio Decidendi

The appellant, through its sole director, failed to exercise sufficient due diligence and was seriously negligent in its conduct of the denied deals. The Tribunal found that the appellant should have known that the transactions were connected with the fraudulent evasion of VAT. The appellant’s approach to due diligence was perfunctory and cavalier, and the evidence established that the only reasonable explanation for the transactions was their connection to fraud. Actual or blind-eye knowledge was not established, but the objective standard was met for denial of input tax under the Kittel principle.

Court Disposition

Appeal dismissed

Orders

  • The appellant’s appeal against HMRC’s denial of input tax is dismissed.