The appeal concerned Kittel denials, s.73 VATA assessments, s.69C VATA penalties and s.69D VATA company officer penalties, where it was alleged that three construction companies knew or should have known that a labour supplier to whom they outsourced their workforce was fraudulently failing to account to HMRC for VAT in its supplies to the three companies.

Joshua Carey represented the three companies and the continuing director. Colm Kelly represented the ex-director of the companies.

Following submissions on behalf of the Appellant on the issue of fraud, the Tribunal allowed the appeal. The Tribunal commented that HMRC’s evidence on the failure by the supplier to account for VAT being fraudulent was “wafer thin so far as substantiating any allegations of fraud was concerned” and that “HMRC’s failure to fully plead the allegations of fraud in paragraph 101 (together with our subsequent refusal to permit the Statement of Case to be amended) has meant that HMRC’s case is seriously injured.” In rejecting HMRC’s belief that the VAT loss was occasioned by fraud, the Tribunal concluded that there was not “a shred of evidence before us to substantiate that belief” and that HMRC’s case on this issue was “circular.” Commenting on the views of the HMRC officers called to give evidence, the Tribunal stated that “their perspective (as amply demonstrated in this case) is tainted by an excessive level of suspicion”, concluding that “HMRC have not come anywhere near discharging the burden of proof so as to persuade us that FFCS’s failure to account for the output tax it had received from Harlequin was fraudulent.”

While the Tribunal had not allowed a debarring application made on the second day of the hearing, they commented that the application had been “a very close-run thing.”

Joshua Carey was instructed on a direct access basis for the First, Second, Third and Fifth Appellants.

Colm Kelly, instructed by Andy Lynch at Francis, Wilks & Jones, acted for the Fourth Appellant.

The decision can be read in full here.