In the case of Sweetmotion Ltd v HMRC [2026] UKFTT 657 (TC), the FTT has partially allowed the appeal against the denial of input VAT to the company under the Kittel principle, and against the associated company and director penalties.
VAT – Kittel – fast moving consumer goods – knew or should have known – company penalty – mitigation – appeal allowed in part
Under the Kittel principle, input VAT recovery is denied when there has been a fraudulent evasion of VAT; the appellant’s purchases on which input tax have been denied were connected with that fraudulent evasion of VAT; and the appellant knew or should have known that its purchases were connected with fraudulent evasion of VAT.
Despite various red flags, the FTT concluded that Mr Jenkins, Sweetmotion’s director, did not know that his company’s transactions were connected with VAT fraud, accepting that he was “someone of high integrity and someone who would not knowingly proceed with anything if he thought it was incorrect, improper, or non-compliant”, explaining his oversights by way of “naivety” , “lack of attention and care to detail” and “foolhardiness”.
However, there was also the issue of whether Mr Jenkins “should have known”. Again, the FTT accepted that while there were many red flags that should have alerted him “We accept Mr Jenkins explanation that he did not know, he was blinded by the hope of being at the start of an exciting business opportunity that would change his life”, however the FTT noted that “from these factors he should have been aware that something was seriously wrong.” As such, the FTT judged that, following HMRC’s intervention and education, Mr Jenkins should have been aware of the fraud from 19 January 2021 (at a meeting on 18 January 2021, “at which some of the hallmarks of missing trader fraud were explained. The note records that when HMRC explained one such hallmark was companies whose turnover increases greatly very quickly, Mr Jenkins interjected that’s what his business had done”). As such, the input VAT denial could only apply from that date. The FTT did find fault with HMRC as, despite the evidence, they delayed in taking action that would have clearly alerted Sweetmotion to the fraud. While noting that “We find such conduct by HMRC troubling and inexplicable,” it was of no help as:
“We can well understand that Mr Jenkins would be angry and upset that HMRC said nothing for so long. However that does not extricate Sweetmotion. The relevant question is still whether Sweetmotion should have known that the transactions were connected with VAT fraud. For the reasons given, we find they should have from 19 January 2021.
We accept HMRC’s inaction after Sweetmotion told HMRC the identity of its suppliers will have given Sweetmotion some comfort. Even so the pointers that something was wrong were so strong that, after they received education from HMRC in January 2021, Sweetmotion should have known the transactions were connected with fraud.”
The recognition that the denial of input VAT was only relevant from a later date reduced the amount of input VAT denied with a knock on effect on the penalties. The FTT also agreed that the penalties should be mitigated:
“Given the very clear cooperation given by Sweetmotion and Mr Jenkins with HMRC we consider it proper to mitigate the penalty. Such cooperation is very clear to us looking at the chain of emails where meetings are arranged. Mr Jenkins was very keen to meet with HMRC. His behaviour in those meetings is forthcoming and cooperative.
In the circumstances we consider a 25% reduction of the penalty appropriate. HMRC will also need to recalculate the penalty so it only relates to transactions on or after 19 January 2021.”
https://caselaw.nationalarchives.gov.uk/ukftt/tc/2026/657
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