VNS Waste Solutions Limited v The Commissioners for HMRC

A respondent should be debarred for having no reasonable prospect of success only after applying the summary disposal test and the tribunal’s duty to deal with the case fairly and justly. The tribunal should assess the pleaded case, available evidence and evidence reasonably expected at trial without conducting a mini-trial.

Where a party advances inconsistent positions in the alternative, the tribunal need not decide one in isolation or give it priority. It should assess the issues and evidence together. A burden of proof is a final means of resolving a fact left uncertain after that assessment; it does not prevent the tribunal finding the fact from the evidence even if the party bearing the burden does not adduce it.

VNS appealed against the First-tier Tribunal’s refusal to bar HMRC from taking further part in VNS’s VAT appeal. HMRC had denied VNS input tax of £1,818,418, principally on the basis that VNS knew or should have known that its purchases were connected with VAT fraud. In the alternative, HMRC pleaded that no taxable supplies had taken place. The alleged transactions formed a circular chain. The parties agreed that if there were no supplies, VNS would have no net VAT liability and the assessment would fail.

VNS argued that HMRC’s no-supply case defeated its primary case and that HMRC had no reasonable prospect of success. The First-tier Tribunal refused the debar application. The Upper Tribunal considered whether HMRC’s alternative pleadings, the burden of proof and the available evidence required HMRC to be barred.

1. Applicable test. Rule 8 of the The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 permits a respondent to be barred where the relevant case has no reasonable prospect of success. The tribunal must consider whether the prospect is realistic, avoid a mini-trial, and consider both the evidence before it and evidence reasonably expected at trial. It should hesitate to decide the matter finally where fuller factual investigation may alter the evidence or outcome. A short point of law may be decided where the evidence is sufficient and the parties have had an adequate opportunity to address it. The Tribunal adopted the principles set out in Easyair Ltd (t/a Openair) v Opal Telecom Ltd [2009] EWHC 339 (Ch), as cited in The First De Sales Limited Partnership & Ors v HMRC [2018] UKUT 0396 (TCC).

2. Supply and Kittel. A Kittel denial requires a supply to have been established or not contested; without a supply there is no input tax to recover. The tribunal must decide whether there was a supply before deciding whether the Kittel criteria are met, but it need not decide the no-supply case first in isolation. The issues and evidence should be considered together. The Tribunal agreed with the approach in Microring Limited v HMRC [2019] UKFTT 456 (TC) and applied the explanation of the Kittel jurisdiction in Infinity Distribution Ltd (in administration) v HMRC [2019] UKUT 0405 (TCC).

3. Alternative pleadings and burden of proof. There was no inherent bar to HMRC pleading a primary Kittel case and an alternative no-supply case, provided each was properly pleaded and supported by material. The burden of proof is not the starting point for resolving facts. The tribunal first assesses the evidence; it resorts to the burden only if uncertainty remains. Even if VNS bore the burden of proving a supply, that would not prevent HMRC adducing evidence of a supply or the First-tier Tribunal finding one, even if VNS did not seek to prove it.

4. Disposition. HMRC’s statement of case pleaded a primary Kittel case and the material could support it. Its alternative no-supply case did not give that alternative priority or eliminate the realistic prospect of success on the primary case. The Tribunal also considered that, even if HMRC had no reasonable prospect of success, debarment would be premature and not fair and just while VNS’s pleadings and evidence remained inconsistent and material factual issues awaited full examination. The appeal was dismissed.

1. Upper Tribunal (Tax and Chancery Chamber): Dismissed VNS’s appeal against the refusal to debar HMRC.
2. First-tier Tribunal (Tax Chamber): On 27 November 2024, refused VNS’s application to bar HMRC from taking further part in the proceedings. The FTT refused permission to appeal; the Upper Tribunal later granted permission.