S & I Electronics Plc v Revenue & Customs [2009] UKFTT 108 (TC) (18 May 2009)

S & I Electronics Plc v Revenue & Customs [2009] UKFTT 108 (TC) (18 May 2009)

The tribunal found that S&I Electronics Plc did not take all reasonable precautions to avoid transactions connected with VAT fraud and, had it done so, would have discovered the connection. The Kittel principle is incorporated into UK law and applies to deny input tax where the trader knew or should have known of fraud. The denial of input tax is limited to the tax actually evaded, not all input tax, to avoid imposing a penalty and maintain VAT neutrality. The ECHR decision in Bulves v Bulgaria does not override the Kittel principle in this context.

Citation
[2009] UKFTT 108 (TC)
Parties
Appellant: S&I Electronics Plc; Respondents: The Commissioners for Her Majesty's Revenue & Customs
Jurisdiction
United Kingdom
Judgment Date
18 May 2009
Procedural Posture
VAT Input Tax Appeal / First Tier Tribunal (tax), Final Judgment
Outcome
Appeal dismissed in part; input tax denied only to the extent of tax actually evaded.
Legal Topics
VAT Fraud, MTIC Fraud, Input Tax Credit, Kittel Principle, Contra Trading, Burden of Proof, Discrimination, Tax Loss, Knowledge Standard
Tax Law European Union Law Human Rights Law VAT Fraud MTIC Fraud Input Tax Credit Kittel Principle Contra Trading +4 more

Case Brief

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Parties

S&I Electronics Plc

Appellant

The Commissioners for Her Majesty's Revenue & Customs

Respondents

Procedural Posture

VAT Input Tax Appeal / First Tier Tribunal (tax), Final Judgment

Legal Issues

  1. 1 Whether S&I Electronics Plc's input VAT claims should be denied due to connection with MTIC fraud
  2. 2 Whether the Kittel principle is incorporated into UK law
  3. 3 Effect of ECHR decision in Bulves v Bulgaria on domestic application of Kittel test

Ratio Decidendi

The tribunal found that S&I Electronics Plc did not take all reasonable precautions to avoid transactions connected with VAT fraud and, had it done so, would have discovered the connection. The Kittel principle is incorporated into UK law and applies to deny input tax where the trader knew or should have known of fraud. The denial of input tax is limited to the tax actually evaded, not all input tax, to avoid imposing a penalty and maintain VAT neutrality. The ECHR decision in Bulves v Bulgaria does not override the Kittel principle in this context.

Court Disposition

Appeal dismissed in part; input tax denied only to the extent of tax actually evaded.

Orders

  • S&I Electronics Plc's input VAT claims for the relevant period are denied to the extent of VAT fraudulently evaded in the supply chain.
  • HMRC to recalculate the disallowed input tax in accordance with the tribunal's findings.