Horizon Contracts Limited (in liquidation) & Ors v The Commissioners for HMRC
[2024] UKFTT 348 (TC)
Ezy Solutions Ltd (in liquidation) v The Commissioners for HMRC
9 March 2023
[2024] UKFTT 299 (TC)
First-tier Tribunal
HMRC wanted to use a shortcut to investigate a huge tax fraud case, but the judge said no. They have to show all their evidence first so the accused businesses know what they're fighting against. It's like if you're accused of stealing, you deserve to see the evidence against you before you decide how to defend yourself.
Key Facts
- •Joined appeals concerning VAT assessments, denials of input tax deduction under Kittel, and section 69C penalties.
- •Appellants (Ezy Solutions Ltd and Milo Corporation Ltd) were payroll and labour providers using mini umbrella companies (MUCs).
- •HMRC alleged a complex, potentially fraudulent scheme involving approximately 1050 VAT MUCs and 8000 PAYE MUCs.
- •HMRC applied for a direction to use a sampling method (50 VAT MUCs initially, potentially 600-700) to assess VAT loss and fraud.
- •Appellants argued they needed to see all evidence before agreeing to a sample.
- •The appeals involved approximately £50 million.
Legal Principles
Overriding objective of the Tribunal Rules is to deal with cases fairly and justly, proportionately, and efficiently.
FTT Rules, Rule 2
Tribunal has wide discretion in case management powers.
FTT Rules, Rule 5
In Kittel cases, HMRC must prove tax loss and connection to fraud for each denied purchase.
Kittel case law (unspecified but central to the case)
Article 6 ECHR (right to a fair trial) applies, but does not prevent the Tribunal's case management powers.
Article 6 ECHR
A party must know the case against it (natural justice).
Principles of natural justice
Outcomes
HMRC's application for a direction to use a sampling method was refused at this stage.
The application was premature as the Appellants lacked the necessary evidence to assess the representativeness of a sample and the accuracy of HMRC's assertions. Providing the evidence, while voluminous, is necessary for a fair trial.
Appellants granted permission to amend their grounds of appeal to include the insufficiency of HMRC's best judgment assessments.
Given the early stage of proceedings and the limited explanation provided by HMRC on best judgement, granting the amendment was deemed to cause no prejudice to HMRC.
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