VAT deregistration under the Ablessio principle: Impact Contracting Solutions Ltd v HMRC
On 16 May 2025, the Court of Appeal (Civil Division) handed down its judgment in the appeal of Impact Contracting Solutions Ltd v HMRC [2025] EWCA Civ 623 which raised important issues as to the scope of what has become known as the Ablessio de-registration principle.
The appeal before the Court was against a decision on preliminary issues of law. No findings of fact having been made against Impact, the case will now proceed in the FTT to determine the facts of the case and apply the law as found by the Court of Appeal to those facts.
In summary, in dismissing Impact’s appeal, the Court upheld the Upper Tribunal’s decision that HMRC have power to deregister a taxable person for VAT not only where that person has itself acted fraudulently but also where it entered into transactions connected with the fraudulent evasion of VAT and knew or should have known that those transactions were connected with the fraudulent evasion of VAT. HMRC must, however, act proportionately. Whether de-registration is proportionate is ultimately a question to be determined on the facts of each case.
The core issues before the Court were whether:
- Ground 1: The UT had erred as to the scope and extent of the principle derived from Ablessio. Impact submitted that, properly understood, Ablessio (i) does not extend to permitting the deregistration of a taxable person who has not themself fraudulently evaded VAT nor had the intention to do so; and (ii) in any event, does not extend to permitting the deregistration of such a taxable person who is making or intends to make taxable supplies that are not connected with fraud.
- Ground 2: The UT had erred in concluding that deregistration of a "mere facilitator" of VAT fraud that was also making (or intending to make) supplies unconnected with fraud would not systematically undermine the right to deduct or breach the EU principles of proportionality, fiscal neutrality and legal certainty.
In respect of the first ground, Lady Justice Falk (with whom Moylan and Popplewell LJJ agreed) stated:
… the correct approach is that whether deregistration of ICSL was lawful depends on: a) whether it knew or should have known that it was taking part in transactions connected with the fraudulent evasion of VAT, and b) whether deregistration was a proportionate step on the facts.
In my view, these conclusions can clearly be derived from the EU case law discussed above. As explained there, Halifax establishes that the VAT system cannot be relied on for "abusive or fraudulent ends", and that the prevention of tax evasion, avoidance and abuse is "recognised and encouraged" by the VAT directive ([27] above). Although Halifax is better known for the principle set out at [74] and [75] of the decision in the context of tax avoidance rather than evasion, it is not so limited. Rather, and unsurprisingly, the Halifax "abuse principle" extends beyond tax avoidance to abuses involving fraud and evasion.
Kittel reflected a deliberate decision to classify those who "knew or should have known" that they were involved in transactions connected with VAT fraud as themselves being participants, on the basis that they were accomplices. This was spelled out further in Italmoda, where the CJEU said in terms that such conduct "is considered to constitute fraudulent conduct on the part of a taxable person" (see [30]-[33] above). Further, Italmoda and Cussens make clear that the "knew or should have known" formulation is not restricted to the deduction of input tax. It applies to other VAT "rights and advantages" (Cussens at [30]). Although VAT registration carries important responsibilities, it is obvious from the existence of the dispute over ICSL's deregistration that it can also be described as an advantage. As the UT said at [112] of its decision, as well as enabling the recovery of input tax it is important in proving status for VAT purposes to counterparties, who may otherwise be less willing to transact.
Italmoda and Cussens also make clear that the general principle of VAT law that VAT rights and advantages do not extend to those participating in fraud or abuse is "inherent" in general principles of EU law. It applies irrespective of the position under national law and other general principles such as legal certainty and fiscal neutrality (see above at [40]-[47]).
…
In respect of the second ground, Falk LJ stated:
There was no distinction in the CJEU’s decision of Ablessio, or later cases, that suggested that because a legitimate business would not be entitled to deduct input tax if deregistered, that this was a bar to deregistration. It found that the right to deduct must “give way to the inherent nature of the Halifax principle (see paragraph 78).
The proximity and extent of a taxable person’s involvement in the transactions connected with fraud are likely to be relevant to the proportionality of a decision to deregister. Importantly, the question of proportionality will depend upon an overall assessment of the facts of any particular case. As to legal certainty and fiscal neutrality, the Court determined that neither principle was breached. It found that, like the right to deduct, they could not trump the Halifax principle (see paragraphs 78 – 82).
Accordingly, the Court held that HMRC do have the power to de-register a taxable person that knew or should have known that its transactions were connected with fraudulent evasion of VAT. However, this power must be exercised proportionately by HMRC, and what is proportionate will depend on the facts of any given case.
The judgment can be found at Impact Contracting Solutions Ltd v Revenue and Customs [2025] EWCA Civ 623 (16 May 2025.
David Bedenham KC and Daniel Margolin KC were instructed by Joseph Hage Aaronson & Bremen LLP for the Taxpayer.
Howard Watkinson and Joshua Carey were instructed by HMRC Legal for the Revenue.
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