Opus Labour Services Limited & Anor v The Commissioners for HMRC

The Kittel test for constructive knowledge remains whether the trader knew or should have known that its transaction was connected with fraudulent VAT evasion. The ‘only reasonable explanation’ approach is one way to prove constructive knowledge, not an exclusive test; HMRC need not eliminate every conceivable alternative explanation, although an alternative actually relied on by the taxpayer may require consideration. An appellate tribunal must read the FTT’s reasons fairly and as a whole. A challenge to factual findings succeeds only where it discloses an error of law. A pattern of successive defaulting suppliers may be assessed objectively, and Gross Payment Status does not replace adequate VAT due diligence where there are significant warning signs.

Opus Labour Services Limited recruited workers for construction sites and outsourced its payroll services to several payroll companies. HMRC alleged that those companies were involved in fraudulent VAT evasion, denied Opus input tax recovery and imposed related penalties. It also imposed Personal Liability Notices on Opus’s sole director, Jason Giller.

The FTT dismissed the appeals on 30 June 2025, finding that the appellants should have known that the transactions were connected with VAT fraud. They appealed on grounds that the FTT had applied the wrong constructive-knowledge test, failed to give adequate reasons and made irrational or unsupported factual findings. They also sought to introduce a new witness statement. The central issues were whether that evidence should be admitted and whether the FTT had erred in law.

1. The new evidence application was refused and the appeal was dismissed. The appellants had not shown that the evidence could not have been obtained with reasonable diligence for the FTT hearing. Admitting it would also have given them a second opportunity to litigate the factual issue and could have required HMRC to conduct the FTT hearing differently.
2. The constructive-knowledge test remains the test in Kittel v Belgium and Belgium v Recolta Recycling SPRL [2008] STC 1537: whether the trader knew or should have known of the connection to fraudulent VAT evasion. It is an objective test and should not be over-refined. Showing that fraud was the only reasonable explanation is one way for HMRC to establish constructive knowledge, but HMRC need not eliminate every conceivable alternative. Where the taxpayer relies on another reasonable explanation, the FTT may need to consider it and make findings on it. The appellants had not made such an alternative explanation central to their case.
3. The FTT’s decision had to be read fairly and as a whole. It had stated the correct objective test, and the Upper Tribunal found no clear indication that it had applied a different one. The FTT was not required to frame its findings using the ‘only reasonable explanation’ formulation. Its detailed findings on the suppliers, the warning signs and Mr Giller’s knowledge made clear why the appeals failed. The approach in DPP Law Ltd v Greenberg [2021] EWCA Civ 672 supported that conclusion.
4. The FTT’s findings were not shown to be irrational, unsupported or reached by ignoring relevant matters. Gross Payment Status exists for the Construction Industry Scheme, not VAT, and could not replace adequate VAT due diligence in the face of multiple warning signs. The FTT was also entitled to take account of the objective pattern of five successive defaulting suppliers; the relevant pattern did not depend on Mr Giller’s subjective awareness of each deregistration notice. The appeal was dismissed in full.

• Upper Tribunal (Tax and Chancery Chamber): On 20 July 2026, refused the application to admit new evidence and dismissed the appeal.
• First-tier Tribunal (Tax Chamber): On 30 June 2025, dismissed the appellants’ appeals against HMRC’s input tax, penalty and Personal Liability Notice decisions.