HMRC Kittel Assessments & Appeals | ‘Suspicious or Dubious’ Activity
We continue our series of articles on the Kittel Principle having previously published the following articles:
In this article Hamraj Kang discusses and highlights some of the recent issues that have arisen in the Kittel assessments and appeals conducted by KANGS Solicitors.
HMRC Allegations
Our extensive involvement in Kittel Principle Appeals has highlighted several factors that HMRC may use when exercising the Kittel Principle against a company.
Typically, HMRC usually cite a number of trading factors it considers 'suspicious or dubious,' suggesting that their presence indicates the company either 'knew' its transactions were linked to VAT fraud or that the 'only reasonable explanation' for these transactions is their connection to fraudulent VAT evasion.
Examples of ‘Suspicious or Dubious’ Activity
From the many cases conducted by KANGS, we can identify some of the potentially suspicious activity or circumstances deemed worthy of investigation by HMRC:
- The situation where a company historically engaged in trading chains that resulted in VAT losses, not because it neglected its own VAT obligations, but due to another trader in the chain failing to meet theirs. In certain cases before the Tax Tribunal, HMRC has attempted to use the company’s ‘previous bad character/poor conduct’ as a basis for judgment, even though the issue in question before the Tax Tribunal, does not relate to the earlier trading covered by the ‘poor conduct’.
- Where HMRC is able to demonstrate the artificiality of the transactions relying on, for example, the unorthodox or unrealistic methods by which the company and its trading chain partners make contact.
- Inadequate or non-existent trade references and background checks conducted by the company on its trading partners.
- The assumption by the company that large volume transactions can be conducted from the outset rather than by conducting any form of diligence by engaging in any test purchases or allowing for a ‘settling in’ period.
- The trading scheme only being in existence for the purpose of evading VAT.
- Lack of required VAT ‘due diligence’ conducted by the company or producing material which is deemed to be ‘window dressing’.
- Failure to take action in relation to ‘red flags’ such as provision of inconsistent VAT Registration Numbers, residential addresses appearing on business invoices, production of incorrect VAT Trade classifications on VAT Certificates etc.
- Lack of basic commercial documents such as Contracts, Terms of Business, Retention of Title provision and Payment Terms in all sectors, particularly those which HMRC deems as high tax loss sectors (such as construction).
- Lack of any normal commercial activity, such as price negotiation, generally producing uniform mark ups and profit margins for all traders clearly evidencing centrality of control of the trading chain.
- Failure to provide any form of insurance such as for seemingly valuable goods in transit.
- The company’s position in the supply chain remaining consistent and unaltered irrespective of other traders appearing, or intermittently disappearing, in the trading chain from time to time.
- Failure by the company to follow HMRC written guidance in ‘high-risk’ sectors and to follow advice provided in face-to-face meetings with HMRC officers.
- All of the above are case specific and can often be rebutted by the company or trader made the subject of a VAT Assessment under the Kittel principle.
Who Can I Contact for Advice & Help?
If you or your business are under investigation by HMRC, including those related to the Kittel Principle, it is essential to seek expert advice right away as strict deadlines may apply for submitting a detailed response.
Our experienced Team will be pleased to assist and provide detailed guidance regarding all aspects of HMRC investigations from the outset to Tax Tribunal or potential criminal proceedings.
If you need assistance, the Team at KANGS are here to help. We welcome new enquiries, simply contact us using the details below:
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.
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