This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

VAT Fraud

The Kittel principle intervention: Kittel in more detail: What is meant by 'fraudulent evasion of VAT': With whom the fraudulent evasion of VAT lies

According to the Kittel principle (VATF52000) HMRC has to prove that there has been ‘fraudulent evasion of VAT’, but Kittel does not state that it is necessary to prove who the defaulter is.

It has been argued that the Kittel principle can only be applied where the defaulter is proven to be the acquirer from the EU and no-one else. It has also been argued that the Kittel principle can only be applied where the evasion of VAT occurs with the immediate supplier to the taxable person whose entitlement to the right to deduct input tax has been refused.

The defaulter does not have to be the acquirer

The High Court, in its judgment in the case of Red 12 Trading Ltd ([2009] EWHC 2563 (Ch)) stated:

  1. In order to justify denial of the right to deduct input tax there must be knowing participation in a transaction connected with fraudulent evasion of the tax. If that is established, the right is lost. It would be inconsistent with that principle, and an unmerited boon to fraudsters, to require the authorities to prove that the defaulter was the original importer.

The Court of Appeal, in its judgment refusing Red 12’s request for leave to appeal against the High Court judgment ([2010] EWCA Civ 402), stated:

  1. Whether the fraudster was the importer or someone further down the line seems to me completely irrelevant and unarguable. There is no basis, in my judgment, in any of the authorities for contending that the importer has to be the defaulter. Of course it must be proved that there has, in respect of each transaction, been a default, and that that default is dishonest, but that can be, in my judgment a fraud committed by anyone down the line and in respect of the person claiming the input tax the question is whether that person had knowledge of it. In my judgment the judge was right in so concluding, and it does not seem to me to be arguable to the contrary.

Top of page

The defaulter does not need to be the immediate supplier

The Court of Appeal, in its judgment in the case of Mobilx Ltd, Blue Sphere Global Ltd and Calltel Telecom Ltd -v- HMRC ([2010] EWCA Civ 517) stated:

  1. The principle of legal certainty provides no warrant for restricting the connection, which must be established, to a fraudulent evasion which immediately precedes a trader’s purchase. If the circumstances of that purchase are such that a person knows or should know that his purchase is or will be connected with fraudulent evasion, it cannot matter a jot that that evasion precedes or follows that purchase. That trader’s knowledge brings him within the category of participant. He is a participant whatever the stage at which the evasion occurs.

Top of page


As has been found by the courts, it does not matter where that fraudulent evasion occurred, just so long as HMRC can demonstrate that there has been a fraudulent evasion of VAT (VATF53105).