Case Note: Lynton Exports (Alsager) Ltd v Revenue And Customs Commissioners [2022] UKFTT 00224 (TC)

• Published date: 02 August 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Trials & Appeals & Compensation
• Law Firm: Joseph Hage Aaronson
• Author: Iain MacWhannell

Summary

As HMRC continue to apply the Kittel principle to increasing numbers of industries and businesses, this decision reinforces that:

• Kittel cases can be won by taxpayers, but the provision of detailed taxpayer evidence (including as to market opportunities and market characteristics) can be crucial.
• The Tribunal will not simply accept HMRC's "suspicions" or "concerns" as proof, and instead will require HMRC to adduce cogent evidence (such as industry comparators) to demonstrate that the circumstances of particular trading were so different to that present in legitimate trading as to lead to the objective conclusion that the taxpayer knew or should have known of a connection with fraud.

Background

HMRC denied input tax on the basis that the relevant transactions were connected with a scheme to defraud the Revenue and that the company knew, or should have known, that this was the case. In other words, HMRC applied what is known as "the Kittel Principle".

In addition, the Appellant was assessed by HMRC to output tax, and the company's claim to zero rating of the relevant transactions was denied on the basis that the relevant transactions were connected with a scheme to defraud the Revenue, and the company knew, or should have known, that this was the case. In other words, HMRC applied what is known as "the Mecsek Principle".

Both sets of assessments were considered and upheld on Review by HMRC. The company appealed to the First-tier Tribunal.

The Decision

The First-tier Tribunal allowed the taxpayer's appeal in full. The Tribunal found that HMRC had simply raised various issues in support of the Kittel assessments and then invited the Tribunal to agree with those issues without "advancing...