Impact Contracting Solutions Limited v The Commissioners for HMRC

The EU-law principle preventing abuse of the VAT system is a free-standing principle. It does not depend on a conforming interpretation of domestic VAT legislation. Accordingly, the Ablessio principle is not contra legem when applied to VAT deregistration.

HMRC may deregister an existing taxable person who knew or should have known that it facilitated another's VAT fraud. The principle is not excluded because that person also made legitimate taxable supplies above the registration threshold. Deregistration must, however, rest on sound objective evidence of probable fraudulent use and an overall, proportionate assessment of the circumstances. It does not of itself breach proportionality, fiscal neutrality or legal certainty.

Impact Contracting Solutions Limited operated in the labour-provision market, dealing with temporary-work agencies and mini-umbrella companies. HMRC cancelled its VAT registration with immediate effect on the basis that it facilitated VAT fraud by the mini-umbrella companies. HMRC separately denied input-tax credits arising from the same transactions.

The First-tier Tribunal determined preliminary issues concerning the scope of Valsts ienemumu dienests v Ablessio SIA. It held that the principle could apply to a facilitator who knew or should have known of another's fraud. ICSL appealed, contending that deregistration was unavailable, contrary to domestic legislation, or necessarily inconsistent with EU-law principles where legitimate taxable supplies exceeded the registration threshold.

1. Appeal dismissed. The Tribunal upheld the First-tier Tribunal's answers to the preliminary issues, save that it determined Grounds 3 and 4 afresh as issues not advanced below in their final form.

2. The VAT abuse principle derived from Halifax plc and others v Commissioners of Customs & Excise is a free-standing EU-law principle. Refusal of a VAT right or advantage following fraud or abuse results from the objective conditions for the advantage not being met; it does not require national implementing legislation. The Marleasing duty of conforming interpretation, and its contra-legem limit, were therefore not engaged.

3. Paragraph 13(5) of Schedule 1 to the Value Added Tax Act 1994 limits cancellations made under paragraph 13(2). It did not prohibit deregistration founded on the abuse principle. Further, section 42 of the Taxation (Cross-border Trade) Act 2018, read with section 98 of the Finance Act 2021, gave continuing statutory effect to the EU principle preventing VAT abuse.

4. The Ablessio principle extends beyond an initial refusal of registration. It permits deregistration of an existing person who facilitated another's VAT fraud, provided that person knew or should have known of the connection. A facilitator is treated as a participant in the fraud. The existence of legitimate supplies exceeding the registration threshold does not create an absolute bar, although it may matter to proportionality.

5. Deregistration must be based on sound objective evidence that fraudulent use is probable and on an overall assessment of the circumstances. Its proportionality is fact-specific. It is not necessarily displaced by other remedies, such as input-tax denial or security requirements, and does not of itself breach fiscal neutrality or legal certainty.

• Upper Tribunal (Tax and Chancery Chamber): appeal dismissed: [2023] UKUT 215 (TCC).
• First-tier Tribunal (Tax Chamber): determined preliminary issues in favour of HMRC, holding that Ablessio could apply to a facilitator who knew or should have known of another's VAT fraud. No citation was stated in the judgment.