In the case of PAP Solutions Ltd & Anor v HMRC [2026] UKFTT 761 (TC), the FTT has dismissed an appeal against HMRC’s decision under the principle of Mecsek-Gabona Kft (C-273/11) to deny VAT zero rating to the company (PAP) on certain EU sales under VATA 1994, s. 30(8) because PAP either knew or should have known that the transactions were connected with VAT fraud committed by its customers. The FTT also dismissed an appeal against the associated penalty under VATA 1994, s. 69C levied on the company and a personal liability notice under s. 69D on the other Appellant, Dr Apostolos Papadopoulos (AP), the company’s sole director.
The FTT summarised the position as follows:
“HMRC accepted that PAP supplied physical goods which were exported to Bulgaria and that it held all relevant export documentation. The denial of zero-rating was made solely on the basis that PAP knew or should have known that it was participating in a supply chain involving fraudulent defaulters. PAP accepted that the transaction chains were accurate but did not accept that there had been a fraudulent tax loss in any of the transactions to which this appeal relates (although they had in earlier correspondence accepted that there was such a tax loss). …
… The substantive issues for this Tribunal to determine were therefore:
(1) whether there was a tax loss connected with fraud in respect of each of the 14 transactions;
(2) whether PAP knew that the transactions were connected with VAT fraud;
(3) if not, whether PAP should have known that the transactions were connected with VAT fraud;
(4) whether PAP had taken every reasonable step in its power to prevent its own participation in that fraud.”
Reviewing the matter, the FTT concluded that:
“We consider that the only reasonable explanation, consistent with all the circumstances, noting the companies’ failure to declare any sales and AP’s evidence that they were making sales and that they only declared purchases from a supplier who insisted on being provided with evidence of such declaration, is that the companies were involved in fraudulent evasion of VAT.
Accordingly, we find that there was a tax loss in the supply chain to which these transactions were connected and that the tax loss was as a result of fraudulent evasion of VAT by Balioni and Spinelo. …
… We consider that the only reasonable explanation for the inconsistencies in evidence, the refusal to accept clear evidence of VAT fraud by the customers, and the uncommercial relationship between PAP and these two companies, permitting them to accumulate a significant level of debt whilst continuing to supply them, is that PAP knew that there was VAT fraud in its supply chain. Provided PAP was being paid by its customers, it was not particularly concerned about this as AP’s view was, as set out in his evidence, that it was for the authorities to stop VAT fraud.
We therefore find that HMRC have met the burden of proof on them to show that PAP knew that their supplies were connected with VAT fraud.”
Alternatively, assuming that PAP did not know, the FTT considered whether PUP should have known and concluded that:
“the above factors taken together would have meant that a reasonable business person with ordinary competence would have considered that it was more likely than not that the customers’ business was connected with fraud. We therefore find that PAP should have known that its supplies to Balioni and Spinelo were connected with fraud.”
Finally, the FTT judged that:
“On balance, we consider that PAP did not take any substantive steps to prevent participation, let alone every reasonable step within its power.”
This led to the FTT’s conclusion that:
“For the reasons set out above, we conclude that HMRC were entitled to deny zero rating in respect of the transactions which are the subject of this appeal.”
With regards to the company penalty:
“Given our conclusions above, it follows that we consider that HMRC were entitled to impose a s69C penalty on PAP. No mitigation of the penalty was considered appropriate. PAP made no submissions as to the quantum of the penalty.
Given that we have concluded that PAP knew that its customers were engaged in fraudulent evasion of VAT we do not consider that there is any reason to mitigate the penalty. We conclude that the penalty was validly issued.”
And, regarding the personal liability notice:
“Given our conclusions above, and noting that AP did not dispute that anyone else was involved in the transactions, we consider that the penalty liability notice was validly issued.”
https://caselaw.nationalarchives.gov.uk/ukftt/tc/2026/761
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