[UK] Agency Director’s £900K+ tax liability upheld

In the UK, the Upper Tribunal has upheld a decision that saw the director of a recruitment agency facing personal tax liabilities in excess of £900,000 after HMRC successfully challenged VAT claims connected to outsourced payroll providers, Contractor Calculator reports.

In Opus Labour Services Ltd v HMRC, the Tribunal dismissed the company's appeal, confirming earlier findings that the agency should have known its transactions were connected with VAT fraud and providing a significant example of how HMRC applies the Kittel principle within labour supply chains.

Opus Labour Services reportedly operated as a recruitment agency supplying workers into the construction industry. The company outsourced payroll administration to a series of specialist payroll providers. Those providers paid the workers, invoiced Opus for their services, charged VAT, then Opus reclaimed that VAT as input tax in the normal way.

Subsequently, HMRC identified that the payroll providers had failed to account for VAT due to HMRC. It argued that the transactions formed part of supply chains connected with fraudulent VAT evasion.

Despite Opus paying the VAT charged on the invoices, HMRC denied the company's entitlement to recover that VAT under the Kittel principle, which allows input tax recovery to be refused where a business knew, or should have known, that its transactions were connected with VAT fraud.

In addition, HMRC imposed penalties on the company before issuing Personal Liability Notices against the sole director, Jason Giller, making him personally liable for those penalties.

The First-tier Tribunal reportedly accepted that the relevant supply chains were connected with fraudulent VAT evasion. The principal issue, however, was whether Opus, through its director, knew or should have known of that connection.

The Tribunal found that Mr Giller did not have actual knowledge of the fraud and it concluded that HMRC had not established "blind eye" knowledge: that he had deliberately avoided confirming facts he suspected.

It did, however, conclude that he should have known the transactions were connected with VAT fraud.

It reportedly considered several factors in reaching that conclusion, including:

• Previous HMRC correspondence concerning labour supply fraud.

• Limited commercial due diligence before engaging payroll providers.

• A repeated pattern of supplier failures over a relatively short period.

The Tribunal concluded that the factors, viewed collectively, meant that a reasonable business person should have recognised the connection with VAT fraud.

Source: Contractor Calculator

In the UK, the Upper Tribunal has upheld a decision that saw the director of a recruitment agency facing personal tax liabilities in excess of £900,000 after HMRC successfully challenged VAT claims connected to outsourced payroll providers, Contractor Calculator reports.

In Opus Labour Services Ltd v HMRC, the Tribunal dismissed the company's appeal, confirming earlier findings that the agency should have known its transactions were connected with VAT fraud and providing a significant example of how HMRC applies the Kittel principle within labour supply chains.

Opus Labour Services reportedly operated as a recruitment agency supplying workers into the construction industry. The company outsourced payroll administration to a series of specialist payroll providers. Those providers paid the workers, invoiced Opus for their services, charged VAT, then Opus reclaimed that VAT as input tax in the normal way.

Subsequently, HMRC identified that the payroll providers had failed to account for VAT due to HMRC. It argued that the transactions formed part of supply chains connected with fraudulent VAT evasion.

Despite Opus paying the VAT charged on the invoices, HMRC denied the company's entitlement to recover that VAT under the Kittel principle, which allows input tax recovery to be refused where a business knew, or should have known, that its transactions were connected with VAT fraud.

In addition, HMRC imposed penalties on the company before issuing Personal Liability Notices against the sole director, Jason Giller, making him personally liable for those penalties.

The First-tier Tribunal reportedly accepted that the relevant supply chains were connected with fraudulent VAT evasion. The principal issue, however, was whether Opus, through its director, knew or should have known of that connection.

The Tribunal found that Mr Giller did not have actual knowledge of the fraud and it concluded that HMRC had not established "blind eye" knowledge: that he had deliberately avoided confirming facts he suspected.

It did, however, conclude that he should have known the transactions were connected with VAT fraud.

It reportedly considered several factors in reaching that conclusion, including:

• Previous HMRC correspondence concerning labour supply fraud.

• Limited commercial due diligence before engaging payroll providers.

• A repeated pattern of supplier failures over a relatively short period.

The Tribunal concluded that the factors, viewed collectively, meant that a reasonable business person should have recognised the connection with VAT fraud.

Source: Contractor Calculator