In the case of AAMRL Ltd & Anor v HMRC [2026] UKFTT 582 (TC), the FTT has partially allowed appeals against various HMRC decisions relating to missing trader fraud.
VAT – Kittel – Missing Trader Fraud – section 69C VATA 1994 Penalty – Transactions Connected with VAT Fraud – section 69D VATA 1994 Penalty – Officers’ Liability – Discretion as to Officers’ Liability – Deregistration – Ablessio
HMRC had sought to deregister the company under the Ablessio principle (where the VAT number was being used fraudulently and the taxable person knew or should have known) and to deny input VAT under the Kittel principle (where the taxable person knew or should have known that the transaction was connected with the fraudulent evasion of VAT). It had also raised an assessment to collect the understated VAT and had imposed tax-geared penalties on both the company and its director, Ms Loria.
The FTT judged that “In the round, it was clear from the evidence that the material transactions were fraudulent in the broadest sense and connected with the transactions of the Appellants”, that “AAMRL’s wholesale activity went from nothing to multi-million pounds per annum in materially no time at all and with no, or close to no, research or marketing” and that “A principal element of HMRC’s case is that the transactions in question simply make no commercial sense. We agree. AAMRL added no commercial value.” However, despite this the FTT did not conclude that “Ms Loria’s evasion or vagueness was in any way sophisticated.” Instead “We were satisfied that Ms Loria was out of her depth. The first point on which we found her credible and reliable was that she did not understand the case against her.” Recognising this, the FTT noted that:
“We concluded that HMRC had not established that Ms Loria was the guiding force of AAMRL’s wholesale activities. … We found Ms Loria to be unsophisticated and lacking any material knowledge about the wholesale business of AAMRL. That conclusion was supported by the evidence of HMRC visits to the business in which HMRC were told by Mr Abbasi that he, Mr Abbasi, was responsible for the wholesale side of the business.”
Considering the circumstances, the FTT concluded that:
“The test set out in Kittel does not require us to be satisfied that a person needs to understand the mechanics or precise features of a fraud in order to satisfy the Kittel test, the required state of knowledge remains knowledge (actual or constructive) of a connection with VAT fraud. The authorities do not support the proposition that general suspicion of wrongdoing, dishonesty, or illegitimacy in a transaction chain is sufficient of itself. Nor do they impose on a trader who harbours such suspicions a duty to identify the legal nature of the fraud at their peril. The question remains whether, on the balance of probabilities, the trader knew or should have known that the transactions were connected with the fraudulent evasion of VAT. For the reasons we have expressed already, we found that HMRC had failed to establish that.
In reaching this conclusion, we are not suggesting that VAT fraud was inherently unknowable before 28 July 2022, but that HMRC bore the burden of proving that it was more likely than not that Ms Loria should have known of the VAT dimension of the fraud, and on the evidence before us that burden was not discharged.”
However, the FTT noted the significance of HMRC’s visit of 28 July 2022:
“During that visit, the role of the FIS [Fraud Investigation Service] in the prevention of VAT fraud was expressed in clear terms. From that moment on, Ms Loria (and therefore AAMRL) should have known that the transactions in question related to VAT fraud specifically.”
The FTT therefore judged the input VAT recovery should not be denied before that date, but should have been after. The decision to deregister followed the visit and was proportionate and should stand. These decisions impacted on the quantum of the VAT assessment and the company penalty. Considering the personal liability notice, the FTT decided to use its discretion and judged that:
“We had regard to our finding that Ms Loria is unsophisticated, was taken advantage of by others who were more sophisticated but also that she had important statutory duties as an officer of a limited company.
We regarded a penalty of 10% of the company penalty as being the lowest amount that reasonably meets the purpose of section 69D.
In all of the circumstances, we conclude that the penalty should be upheld but reduced to 10% of the company penalty, as recalculated.”
https://caselaw.nationalarchives.gov.uk/ukftt/tc/2026/582
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