In K Bachra v HMRC [2023] UKFTT 91 (TC) (30 January 2023) the First-tier Tribunal (FTT) held that an inaccuracy arising because the taxpayer ‘should have known’ that transactions were connected to VAT fraud was not ‘deliberate’ conduct for the purposes of calculating penalties.
The appellant (Mrs Bachra) operated a cash and carry business. HMRC denied the business VAT recovery on a significant number of wholesale alcohol purchases made between 2014 and 2016 under the Kittel (Case C-439/04 and C-440/04) principle (the principle that HMRC may deny VAT recovery to a business if it knew or should have known that transactions were connected with VAT fraud). HMRC also charged a penalty which was calculated on the basis that the ‘inaccuracy’ was deliberate and disclosure was prompted.
The FTT looked first at whether the Kittel principle was satisfied. For it to be satisfied three facts had to be established on...
