Foundry Supplies UK Limited v Revenue And Customs -[2023] UKFTT 656 (TC)- (25 July 2023)

Key Facts

Tax Type

Issues

• The Tribunal addressed whether HMRC must provide further and better particulars of the alleged 'overall scheme' of fraud in the Kittel appeal, as the Appellants contended the nature of the fraud (e.g., MTIC, carousel) was insufficiently specified to prepare their defense.
• The Tribunal was required to determine whether the appeal reference TC/2022/13652 should be struck out under rule 8(1) FTT Rules due to lack of jurisdiction, as HMRC argued the 14 September 2022 letter was not an appealable decision and the appeal was duplicative of later references.

Tax Years

Holdings

• The Appellants' request for further and better particulars regarding the alleged 'overall scheme' of fraud was refused. The Tribunal held that HMRC's existing pleadings, including Annex A, sufficiently detailed the tax loss and patterns of fraudulent activity in the supply chains. It emphasized that the precise classification of the fraud (e.g., MTIC, carousel) was unnecessary for the Kittel assessment, as the focus was on demonstrating fraudulent tax loss and the taxpayer's knowledge or awareness.
• The Tribunal struck out the appeal reference TC/2022/13652 on the grounds that the HMRC letter of 14 September 2022 did not constitute an appealable decision under section 83(1) VATA. The appeal was found to lack jurisdiction as the letter did not specify a decision to deny input tax. However, HMRC was ordered to pay Foundry's costs from 7 October 2022 to 31 May 2023 due to their confusing correspondence and delayed strike-out application, which caused unnecessary expense.

Remedies

• The Tribunal ordered HMRC to pay Foundry's costs related to the strike out application from 2022-10-07 to 2023-05-31. The costs were deemed unreasonable due to HMRC's ambiguous letters and delayed strike out application. Costs for the Appellants' further and better particulars application and joinder-related matters were excluded. The costs are subject to assessment if the parties cannot agree.
• The Tribunal granted the strike out application under rule 8(1) FTT Rules, determining that the appeal reference TC/2022/13652 lacked jurisdiction as the 14 September 2022 letter did not constitute an appealable decision under section 83(1) Value Added Tax Act 1994. The appeal was struck out, but an unreasonable costs order was made against HMRC for the period from 2022-10-07 to 2023-05-31, with costs to be assessed if not agreed. This followed HMRC's confusing correspondence and delayed strike out application, which caused Foundry unnecessary expenses.

Tax Issue Category

Legal Principles

• The Tribunal addressed the burden of proof under the Kittel principle, requiring HMRC to demonstrate that Foundry 'knew or should have known' of the fraudulent evasion of VAT. HMRC satisfied this by presenting evidence of tax loss, supply chain patterns, and Foundry's commercial failings, without needing to prove dishonesty or specify the fraud's exact nature.
• The Tribunal applied the principle of 'substance over form' in assessing whether Foundry participated in VAT fraud. The decision emphasized that HMRC's case relied on patterns and connections indicating fraudulent tax loss, rather than the specific type of fraud (e.g., MTIC or carousel). The Tribunal concluded that the nature of the fraud did not need to be explicitly named if the circumstances sufficiently demonstrated fraudulent activity.

Disputed Tax Amount

Precedent Name

• Portland Stone Firms Ltd v Barclays Bank Plc and others
• Three Rivers District Council v Bank of England
• Davis and Dann v HMRC
• Mobilix Ltd (in administration and others v HMRC
• Gamatronic (UK) Ltd v Hamilton and others
• HMRC v Citibank NA and another
• Red12 v HMRC

Cited Statute

• Tribunal Procedure (First-tier Tribunal (Tax Chamber) Rules)
• Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009
• Value Added Tax Act 1994

Judge Name

Passage Text

• The Appellants have been provided with sufficient information (in Annex J to the statement of case) of the parties in the relevant supply chains generating the tax loss. Similarly they have sufficient information as to what HMRC allege as the patterns and connections on which they found firstly the allegation that the tax loss is fraudulent and secondly the contention that Foundry knew of should have known of the relevant VAT frauds (in the statement of case section B.9 and by reference to Annex A). The particularisation provides a sufficient understanding of the basis on which the Kittel assessments have been raised and no further particularisation is required.
• I am satisfied, in particular by reference to an analysis of Mobilix, and as acknowledged by Mr Watkinson, that knowledge (by either HMRC or the taxpayer) as to the nature of the fraud is not a necessary component of a Kittel assessment. I accept, in full, HMRC's submission that provided that they can show that there is a tax loss and that by reference to all the facts and circumstances that loss arise from dishonest conduct somewhere in the chain (determined by reference to the patterns and connections such as those identified in paragraph [10.] above i.e. including the improbability of co-incidence, repeated pattern of being supplies by traders who then go on to be de-registered, the trading model and environment etc.) and that the relevant taxpayer knew or should have known of the fraud the case for a Kittel assessment will have been made out.
• I therefore refuse the Appellants application for further and better particulars.