Deandrake Ltd v Revenue & Customs [2011] UKFTT 250 (TC) (14 April 2011)

Deandrake Ltd v Revenue & Customs [2011] UKFTT 250 (TC) (14 April 2011)

The Tribunal found that while the Appellant did not have actual knowledge that its transactions were connected with VAT fraud, it ought to have known. The circumstances, including the contrived trading chains, lack of commerciality, inadequate due diligence, and the Appellant's disproportionate profits, meant that a director of ordinary competence would have concluded that the only reasonable explanation for the transactions was their connection to fraud. The knowledge of Zulfi Khan was attributable to the Appellant. Therefore, the input tax claim was denied under the Kittel principle.

Citation
[2011] UKFTT 250 (TC)
Parties
Appellant: Deandrake Limited; Respondents: The Commissioners for Her Majesty’s Revenue and Customs
Jurisdiction
United Kingdom
Judgment Date
14 April 2011
Procedural Posture
VAT Appeal (first Tier Tribunal Tax) / Final Judgment
Outcome
Appeal dismissed
Legal Topics
MTIC Fraud, Input Tax Deduction, Attribution of Knowledge, Due Diligence, Fraudulent Evasion of VAT
Tax Law VAT Law European Union Law MTIC Fraud Input Tax Deduction Attribution of Knowledge Due Diligence Fraudulent Evasion of VAT

Case Brief

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Parties

Deandrake Limited

Appellant

The Commissioners for Her Majesty’s Revenue and Customs

Respondents

Procedural Posture

VAT Appeal (first Tier Tribunal Tax) / Final Judgment

Legal Issues

  1. 1 Whether the Appellant knew or ought to have known that its transactions were connected with the fraudulent evasion of VAT
  2. 2 Whether input tax should be denied under the Kittel principle
  3. 3 Whether knowledge of a consultant (Zulfi Khan) should be attributed to the Appellant

Ratio Decidendi

The Tribunal found that while the Appellant did not have actual knowledge that its transactions were connected with VAT fraud, it ought to have known. The circumstances, including the contrived trading chains, lack of commerciality, inadequate due diligence, and the Appellant's disproportionate profits, meant that a director of ordinary competence would have concluded that the only reasonable explanation for the transactions was their connection to fraud. The knowledge of Zulfi Khan was attributable to the Appellant. Therefore, the input tax claim was denied under the Kittel principle.

Court Disposition

Appeal dismissed

Orders

  • Input tax claim of £181,125.88 denied
  • No order as to costs