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HMRC internal manual

VAT Fraud

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The Kittel principle intervention: Kittel in more detail: What is meant by ‘knew or should have known’: The meaning of 'knew or should have known' in relation to corporate entities

The High Court, in its judgment in the joined case of Livewire Telecom Ltd & Olympia Technology Ltd ([2009] EWHC 15 (Ch)), stated:

  1. … the Kittel [principle] applies to the taxable person. The taxable person was Olympia (the company). The question therefore for the tribunal was not what a director of Olympia knew or ought to have known, but what the company itself knew or ought to have known. The knowledge of a director of the company may, to be sure, be attributed to a company, but there may be other knowledge (for example that of a senior employee) which, on the facts ought also to be attributed to the company.

  2. In applying the correct legal test, the tribunal must consider not only the knowledge that should be attributed to the company via its directors, but also the knowledge that should be attributed to the company via its senior employees. In this context, knowledge includes both knowledge of facts and the ability to evaluate those facts and to draw appropriate conclusions from them.

As can be seen from the above, when determining who ‘knew or should have known’ in relation to a corporate entity you should take into consideration the knowledge of the officials of that corporate entity (director(s) and company secretary(ies)) as well as employees (in any capacity) and third parties (agents, advisors etc) who might have conducted or assisted in the transaction(s). (See also VATF53440.)

  • VATF53415 looks at whether a taxable person ‘knew’;
  • VATF53420, VATF53425 and VATF53430 look at whether a taxable person ‘should have known’;
  • VATF53435 briefly looks at contrivance; and
  • VATF53440 looks at situations where a taxable person relies on a third party.