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Impact Contracting Solutions Limited v The Commissioners for HMRC

[2023] UKUT 215 (TCC)
Imagine a company helps others cheat on their taxes, but also does some honest work. Even if the honest work is enough to normally require it to pay taxes, the government can still stop it from paying taxes altogether because of the cheating. This is because helping others cheat is just as bad as cheating yourself, and the government wants to stop tax cheats.

Key Facts

  • Impact Contracting Solutions Limited (ICSL) was deregistered for VAT by HMRC in 2019, based on the Ablessio principle.
  • ICSL facilitated VAT fraud by 3,000 mini-umbrella companies (MUCs) but also made legitimate supplies exceeding the VAT registration threshold.
  • ICSL appealed the deregistration, leading to preliminary issues regarding the scope of the Ablessio principle.

Legal Principles

Ablessio principle: Tax authorities can deregister a VAT-registered person who facilitates VAT fraud, even if they also make legitimate supplies.

Valsts ienemumu dienests v Ablessio SIA (C-527/11)

Halifax principle: Community law cannot be relied on for abusive or fraudulent ends. Tax authorities can refuse VAT benefits if transactions constitute an abusive practice.

Halifax plc and others v Commissioners of Customs & Excise C-255/02

Kittel principle: A taxable person who knew or should have known they were participating in VAT fraud forfeits VAT benefits, regardless of profit.

Axel Kittel v Belgium; Belgium v Recolta Recycling (C-439/04 and C/440-04)

Marleasing principle: Domestic courts must interpret national law in light of EU directives.

Marleasing SA v La Comercial Internacional de Alimentacion SA Case C-106/89

Contra legem principle: Interpretation of national law cannot contradict its explicit wording.

Dansk Industri (DI) v Estate of Karsten Eigil Rasmussen (Case C441/14)

Proportionality: Measures must be suitable, necessary, and not disproportionate to the benefits.

R (Lumsdon and others) v Legal Services Board [2015] UKSC 41

Fiscal neutrality: Equal VAT treatment for similar competing supplies.

EU law

Legal certainty: Rules must be clear, precise, and predictable.

EU law

VATA 1994, Schedule 1, paragraph 1: Defines liability for VAT registration.

Value Added Tax Act 1994

VATA 1994, Schedule 1, paragraph 13: Deals with cancellation of VAT registration.

Value Added Tax Act 1994

EU law on VAT abuse continues to apply post-Brexit.

Taxation (Cross-border Trade) Act 2018, section 42; Finance Act 2021, section 98

Outcomes

Appeal dismissed.

HMRC's application of the Ablessio principle to deregister ICSL was not contra legem, disproportionate, or a breach of EU principles.

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