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HMRC internal manual

VAT Fraud

HM Revenue & Customs
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The Kittel principle intervention: Kittel in more detail: What is meant by ‘knew or should have known’: Introduction

The third and final limb (VATF52300) of the Kittel principle (VATF52200) is the need to show that the taxable person ‘knew or should have known’ that his transaction was ‘connected with fraudulent evasion of VAT’ (dealt with in VATF53100, VATF53200 and VATF53300).

The ECJ judgement in Kittel does not define what is meant by ‘knew or should have known’ but does state that it is an objective test.

As the transactions are being traced (VATF33500) and all evidence is being collected, you should be looking to gather evidence in relation to the ‘knew or should have known’ limb, such as:

  • evidence of the taxable person’s general knowledge of fraud at the time the transactions took place (VATF53430, VATF53435 and VATF70000);
  • features of the nature of the transactions that would have lead the taxable person to question whether they were ‘connected with fraudulent evasion of VAT’ (VATF60000); and
  • due diligence and risk assessment carried out by the taxable person to identify and address the risks identified (VATF70000).

The following sections look at:

  • the meaning of ‘knew or should have known’ in relation to corporate entities (VATF53410);
  • whether a taxable person ‘knew’ (VATF53415);
  • whether a taxable person ‘should have known’ (VATF53420, VATF53425 and VATF53430);
  • contrivance (VATF53435), and
  • when a taxable person relies on a third party (VATF53440)