If you have received a Kittel assessment from HMRC or require strategic advice to mitigate VAT fraud risks, please contact us.
Our team brings over 20 years of experience in this area, having acted in a number of leading cases in the Tax Tribunal, High Court and Court of Appeal.
Kittel Principle
The Kittel principle, established by the ECJ in Axel Kittel v Belgium (2006), allows HMRC to deny input VAT recovery if a taxpayer knew or should have known that their transactions were connected to VAT fraud, even if the fraud was committed by another party in the supply chain.
HMRC must prove that there has been a fraudulent evasion of tax and that evasion/default was connected to the taxpayer’s transaction.
HMRC’s Application
HMRC applies this principle extensively, particularly in supply chain investigations. The burden of proof lies with HMRC to demonstrate:
- A fraudulent VAT loss occurred; and
- The taxpayer’s transactions were connected to that fraud; and
- The taxpayer had actual or constructive knowledge of the connection.
If HMRC can demonstrate the above, possible outcomes to the taxpayer will be:
- Loss of their right to deduct input tax (which is likely to result in a significant tax liability)
- Penalties
- In serious cases, its directors/principals will be personally liable for any tax owed.
Factors HMRC Considers:
- Presence of VAT fraud in the sector; and
- Unusual or uncommercial transaction features; and
- Deficient due diligence.
What to do if you are Responding to a Kittel Enquiry:
- Act immediately upon receiving HMRC correspondence.
- Seek specialist legal advice.
- Request full disclosure of the transactions under scrutiny.
- Prepare for potential litigation if HMRC withholds key information.
Consultant, Khalil Makonnen, will help you to navigate complex VAT fraud investigations and HMRC enquiries with practical and strategic advice.
Please contact khalil.makonnen@wlegal.co.uk if you would like an introductory meeting concerning Kittel assessments, VAT fraud risk management, or defending against HMRC action.
