Nicholas and Charlotte Sandham T/A Premier Metals Leeds v The Commissioners for HMRC

For the purposes of the Kittel principle, whether an agent’s knowledge is attributed to a principal depends on the legal context and the purpose of the rule in issue. A principal claiming input-tax credit for transactions entered into by its authorised agent cannot rely on the agent’s acts to establish the claim while denying attribution of the agent’s knowledge that those transactions were connected with VAT fraud.

The rule applies to partnerships as well as companies. An agent’s breach of instructions, and the principal’s lack of personal knowledge, do not prevent attribution where the agent acted on the principal’s behalf in effecting the transactions. This gives effect to the anti-fraud purpose of the Kittel principle.

The appellants carried on business in partnership as Premier Metals Leeds. Their agent, Mr France, entered into 56 purchases and immediate resales of primary metals on the partnership’s behalf. He knew that the transactions were connected with fraudulent evasion of VAT, although the appellants did not personally have that knowledge.

HMRC disallowed input-tax credit and raised assessments totalling £1,930,951. The First-tier Tribunal held that Mr France’s knowledge was attributable to the partnership and dismissed its appeal. It also found, in the alternative, that the appellants themselves neither knew nor had the means of knowing of the connection with fraud.

The issue before the Upper Tribunal was whether the agent’s knowledge was attributable to the partners when applying the principle in Kittel v Belgium [2008] STC 1537.

1. Appeal dismissed. The First-tier Tribunal correctly attributed Mr France’s knowledge of the fraudulent connection to the appellants for the purpose of the Kittel principle.

2. Attribution is determined by the specifically legal context: the nature, subject matter and policy of the rule for which knowledge is material. It is not a general inquiry into fairness. The principles explained in Meridian Global Funds Management Asia Ltd v Securities Commissioner and Bilta (UK) Ltd (in liquidation) v Nazir showed that agency attribution must be considered in that context.

3. The unusual and sympathetic facts, including Mr France’s fraud and breach of duty, did not displace attribution. The protective duty considered in Singularis Holdings Ltd (in liquidation) v Daiwa Capital Markets Ltd arose in a materially different legal context. Nor did the vicarious-liability test in Mohamud v WM Morrison Supermarkets Plc assist.

4. Mr France was authorised to enter the relevant transactions and bound the partnership in doing so. The appellants relied on those acts to support their input-tax claim. They could not, consistently with that position, deny attribution of his knowledge when the same transactions were tested under Kittel. The Tribunal followed the analogous reasoning in Mobile Sourcing Ltd v HMRC [2016] UKUT 274 (TCC).

5. The attribution principle is not confined to companies. It can apply to a partnership. A rule limiting knowledge to that of the individual partners would permit a partnership to delegate its business to dishonest agents while remaining deliberately uninformed, contrary to the anti-fraud purpose of Kittel.

• Upper Tribunal (Tax and Chancery Chamber): dismissed the appellants’ appeal and upheld the First-tier Tribunal’s conclusion that the agent’s knowledge was attributable to the partnership when applying the Kittel v Belgium principle.
• First-tier Tribunal: dismissed the partnership’s appeal against HMRC’s refusal of input-tax credit. It held that the agent’s knowledge was attributable, while finding in the alternative that the partners did not themselves know, or have the means of knowing, of the fraudulent connection.