Keystone Law’s tax litigation partner Martin O’Neill has represented online retailer Ebuyer in its ten-year case against HMRC, at the centre of which were disputed claims for VAT repayment totalling approximately £6.7 million.

Ebuyer, which sells electronics, technology and office supplies, has been in dispute with HMRC since 2013 following its denial of the right to deduct input tax of approximately £6.7m from June 2010 to September 2011. None of Ebuyer’s suppliers was said to be a fraudster; however, HMRC alleged that the transactions were connected with the fraudulent evasion of VAT further up the supply chain, and that Ebuyer either knew, or alternatively should have known, of this connection. This is the so-called ‘Kittel’ criteria often deployed by HMRC.

Martin has represented Ebuyer in this appeal since 2017, through the case’s hearings in the Court of Appeal and the Tax Tribunal. Ebuyer’s argument throughout was that it disputed the alleged connection to fraud, and moreover that HMRC had failed to show how Ebuyer knew or could have known of any such connection.

This appeal has been characterised by Ebuyer’s various attempts to force HMRC to clarify its case and to disclose documents in its possession that were relevant to the appeal. The pre-hearing arguments culminated in November 2021 when the Tribunal issued an Unless Order, meaning HMRC was challenged to disclose documents relevant to the appeal, or it would be disbarred from further participation in the appeal. HMRC failed to comply with the terms of the disclosure order.

HMRC applied for relief from sanctions and requested that it be allowed to continue to contest the appeal against Ebuyer. After a two-day hearing in January 2023, HMRC’s application was denied and HMRC was barred from further participation in these proceedings.

HMRC did not appeal the Tribunal’s Decision, issued in July 2023. HMRC was subsequently required to withdraw all of the disputed decisions, repay all withheld sums and pay Ebuyer’s costs.

Martin O’Neill said:

“This is an excellent result for Ebuyer. In a ‘Kittel’ case like this, where HMRC elected to pursue our client while allowing those alleged to have carried out the fraud to escape sanction, it is our experience that HMRC rely heavily on subjective evidence and the opinions of their witnesses. We consider it vital that HMRC must be made to comply with the rules of evidence and the Tribunal’s directions, otherwise Tribunal hearings, when they take place, are unfair. HMRC bear the burden of proof in these cases and have considerably more resources than practically all taxpayers. In representing clients in these cases, we pay great attention to both the evidence served, and the documents that we know should exist but have not been served.

“We cannot overstate how those receiving ‘Kittel’ decisions of this type are facing serious allegations that can threaten the very existence of even the largest companies. Additionally, HMRC, as a matter of policy, generally issue penalty notices against companies, and also against company directors personally, which can substantially increase the debts owed to HMRC and have life-changing implications for those involved.”

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