Director should have known supply chain was fraudulent

The taxpayer was the sole director and shareholder of Drinks 4 Less a wholesaler of alcohol products which registered for VAT in 2011 and went into liquidation in November 2023. HMRC issued an assessment for £182 455 in July 2017 to disallow input tax claimed by the company. This was on the basis that the 179 transactions were connected to a fraudulent loss of VAT. HMRC applied the Kittel test and decided that the director ‘should have known’ that the supplies were fraudulent.

HMRC also issued a penalty for £74 824 taking the view that the inaccuracies were deliberate and not concealed. The penalty was transferred to the director under FA 2007 Sch 24 para 19(1) with a personal liability notice (PLN). Note that a penalty is always calculated according to the ‘potential lost revenue’ for HMRC.

The director claimed that he ran a legitimate...