Ingenious Construction Ltd, R (On the Application Of) v Revenue And Customs

HMRC may cancel a VAT registration where objective factors establish that the registration is being used to facilitate VAT fraud and the taxable person knew, or should have known, of the connection with fraud. The power arises from Value Added Tax Act 1994 Schedule 1 and the Community law doctrine prohibiting abuse. It extends beyond cases where the registered person is itself fraudulent.

Interim restoration will ordinarily require compelling evidence that refusal would make the statutory appeal illusory. The court must also give significant weight to the public interest in collecting VAT and protecting the VAT system. The statutory appeal to the First-tier Tribunal is the ordinary remedy against deregistration.

Ingenious Construction Ltd sought interim restoration of its VAT registration and permission to challenge HMRC’s refusal to restore it pending the company’s appeal to the First-tier Tribunal. HMRC had cancelled the registration after identifying repeated transactions with payroll suppliers which had defaulted in accounting for VAT and concluding that the registration facilitated fraud.

The company argued that HMRC lacked power to deregister, had acted retrospectively and disproportionately, and had denied it an effective appeal. The Tribunal had expedited the statutory appeal. The court therefore considered the lawfulness of deregistration, the threshold for interim relief, and whether judicial review should proceed despite the alternative statutory remedy.

1. Power to deregister. The court rejected the argument that HMRC lacked power to cancel the registration. Schedule 1 paragraphs 13(2) and 13(5) of the Value Added Tax Act 1994 empower HMRC to cancel registration where the person has ceased to be registrable and is not entitled to remain registered. The power in cases of fraudulent use is reinforced by the Community law doctrine of abuse, as explained in Ablessio (Case C-527/11).
2. The power extends to a person who is not itself fraudulent but facilitates fraud, in the Kittel sense, by knowing or having the means of knowing that its transactions are connected with fraud. The relevant question is whether objective factors provide sound evidence for that conclusion. Thames Wines Ltd v Revenue and Customs Commissioners confirmed that the principle extends to a chain involving fraudulent suppliers.
3. Interim relief. Under section 37 of the Senior Courts Act 1981, the court could order temporary restoration. The public interest in lawful VAT collection and preventing fraud was significant. Because an effective hearing engages Article 6 of the Convention and Article 47 of the Charter, the court also considered whether refusal would make the Tribunal appeal illusory. That required compelling evidence and a high degree of probability, not merely a director’s narrative of financial difficulty.
4. The company had not shown an imminent collapse supported by independent and compelling financial evidence. Nor had it shown the high-level abuse of power, impropriety or unfairness required for interim intervention where Parliament had not given the Tribunal suspensory powers.
5. On the evidence of repeated dealings with defaulting suppliers, inadequate due diligence and the apparent progression to another connected defaulting supplier, HMRC had a good case that deregistration was proportionate and based on objective factors. The application for interim relief and permission for judicial review was refused. The expedited Tribunal appeal provided an adequate alternative remedy.