Kittel principle applies beyond MTIC cases

Les Howard
VAT Consultant
Share this content

I had hoped not to have to deal with Kittel cases. The principle is that a seller of goods or services is denied input tax when he knew, or should have known, that the supply in question was (a) connected with a VAT loss, and (b) the VAT loss was fraudulent. This was the outcome of an ECJ case [2008] STC 1537. I understand subsequent cases have further focused how this principle is to be applied. But, I have been able to keep a safe distance from such cases as they involved so-called MTIC fraud.

And then, HMRC started to apply Kittel more widely. It seems that, where a VAT loss occurs in relation to two associated companies, HMRC consider whether the principle applies. This leads to a loss of input tax, and also a penalty based on ‘deliberate conduct.’  Potentially a Director’s name may appear in the published list of deliberate defaulters.

I know of two FTT decisions which have considered Kittel in relation to the construction sector. Both involve lengthy narratives of the interactions between the companies, over many months. The Tribunal has the unenviable task to ‘get inside’ the mind of the decision maker(s), as well as to identify the key events in the narratives.

In Victoria Walk Ltd [2016] UKFTT 687, the Tribunal found it a difficult case, and “we did not reach our conclusion without material reservation,” ultimately finding against the taxpayer.

In contrast, in Oval Estates (Bath) Ltd [2017] UKFTT 403, the Tribunal found in the taxpayer’s favour.

There were side issues in relation to the quality of invoices provided. (‘Why does one company have to provide huge detail on an invoice when its customer is an associated company?’}  In one of the cases, a recipient company was partially exempt too.

And, if you look, you will find my name in one of the decisions!

Comment: You can find HMRC’s basic approach in VIT31200 (final section), which essentially re-states the Kittel principle. And, I hope you never need it.

About Les Howard


Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire

I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.


Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.