Eurolaser IT Limited v The Commissioners for HMRC

An appeal on a point of law against findings that a taxpayer knew or should have known its transactions were connected with VAT fraud will fail unless the findings were unsupported by evidence, contradicted by the evidence, or ones no reasonable tribunal could reach. Disagreement about evidential weight is insufficient. In assessing knowledge under the Kittel and Mecsek principles, a tribunal is not confined to evidence generated by the transactions themselves. A person's prior knowledge, experience or involvement in the same type of fraud may be relevant, particularly as evidence of familiarity with fraud indicators; its weight depends on the circumstances. Individual features that can also occur in legitimate trading may contribute to an inference of knowledge when considered cumulatively.

The appellant, an information technology trader, appealed against the First-tier Tribunal’s decision in Eurolaser IT Limited v HMRC [2025] UKFTT 405 (TC). The FTT had upheld HMRC’s denial of input-tax deductions and zero-rating for intra-Community supplies, and related penalties, under the Value Added Tax Act 1994. HMRC accepted that the company’s sole director lacked the relevant knowledge, but maintained that its self-employed consultant, Mr Darr, knew or should have known that the transactions were connected with VAT fraud, and that his knowledge was attributable to the company.

The FTT accepted HMRC’s case. The Upper Tribunal, hearing an appeal on three grounds with permission, considered challenges to the FTT’s actual and constructive knowledge findings, including its use of Mr Darr’s earlier involvement in MTIC fraud. The central questions were whether the FTT’s findings were legally open to it and whether that earlier experience could be relevant to the Kittel and Mecsek knowledge inquiry.

1. Appeal dismissed. Grounds 1 and 2 challenged findings and inferences of fact. Under Edwards v Bairstow [1956] AC 14, an error of law may arise where a finding has no evidential support, is contradicted by the evidence, or is one no reasonable tribunal could reach. The threshold is high. The Upper Tribunal rejected the suggestion that the FTT ignored Mr Pallister’s evidence. His evidence that similar trading features could occur in legitimate transactions did not prevent the FTT from considering those features alongside the broader evidence and Mr Darr’s experience.
2. The fact that Mr Pallister was not cross-examined did not require the FTT to accept every evaluative view in his evidence. The fairness-based rule described in Griffiths v TUI (UK) Ltd [2023] UKSC 48 is not inflexible. This was not a case in which the FTT rejected Mr Pallister’s factual evidence; it considered the aspects it regarded as relevant to Mr Darr’s knowledge.
3. Features capable of occurring in legitimate trading may still support an inference of knowledge when considered cumulatively. The FTT was entitled to assess transaction patterns, mark-ups, counterparties, payment arrangements and similarities with earlier transactions against the wider evidential picture. It could also consider conduct before, during and after the transactions insofar as that conduct could shed light on knowledge at the relevant time. The inference about why the trading ceased was not central, and the FTT’s conclusions survived without it.
4. Ground 3 failed. The inquiry under Kittel and Mecsek is directed to whether the taxpayer knew or should have known of the connection between the transactions and fraud, but it is not confined to evidence arising from those transactions alone. Prior experience, knowledge or involvement in the same type of fraud may be an objective factor; its significance is a matter of weight. The earlier findings concerning Mr Darr were capable of evidencing familiarity with supply-chain fraud and its indicators, rather than merely a propensity to engage in fraud. That familiarity could inform the assessment of actual or constructive knowledge where similar features appeared in later transactions.

1. Upper Tribunal (Tax and Chancery Chamber): Appeal dismissed: [2026] UKUT 324 (TCC) .
2. Upper Tribunal (permission decision): Permission to appeal was granted; the oral renewal is reported as [2025] UKUT 00358 (TC).
3. First-tier Tribunal (Tax Chamber): Dismissed the company’s appeal and upheld the assessments and penalties: [2025] UKFTT 405 (TC).