Judgment summary
This is an appeal to the Upper Tribunal (Tax and Chancery Chamber) against a First-tier Tribunal (Tax Chamber) decision issued on 30 June 2025 (the Decision), which dismissed appeals by Opus Labour Services Limited (in liquidation) and its sole director, Mr Jason Giller, against HMRC's denial of input tax, related penalties, and Personal Liability Notices (PLNs) imposed on Mr Giller (1).
The denial of input tax was based on the Kittel principle, on the grounds that the relevant transactions were connected with the fraudulent evasion of VAT and that Opus knew or should have known this (1).
The Upper Tribunal (Judge Thomas Scott and Judge Andrew Scott) refused an application by Mr Giller to admit new evidence, and dismissed the appeal on all grounds, upholding the FTT's Decision (84).
Background
Opus was incorporated on 24 October 2016 and was registered for VAT from 1 November 2016 until deregistered by HMRC on 11 December 2019 (5). Its business at Companies House was described as "temporary employment agency activities" (5). Opus entered administration on 9 January 2020, and Mr Giller was sole director and majority shareholder during the relevant periods (5).
Opus operated as a recruitment company supplying staff, including workers carrying out asbestos removal, to customers in the construction industry, and purchased payroll services from a number of companies (the Payroll Companies), to which it outsourced its payroll function (6)-(7).
HMRC alleged that the Payroll Companies were defaulting suppliers who fraudulently failed to account for VAT and/or acted as "buffers" in chains leading to VAT loss (8). HMRC denied Opus the right to deduct input tax, imposed related penalties, and issued PLNs against Mr Giller in respect of certain penalties (9).
Before the FTT, the parties applied the four-stage test from Blue Sphere Global Limited v HMRC [2009] EWHC 1150 (Ch) (11). The first three elements, tax loss, fraudulent evasion, and connection of the transactions to that evasion, were conceded, leaving only the question of knowledge or constructive knowledge for determination (12).
The FTT found that Mr Giller did not have actual knowledge of the connection to fraud (204)-(207), and, with some reservations, found on the balance of probabilities that he did not have "blind-eye" knowledge (208)-(209). However, the FTT concluded that Mr Giller did have constructive knowledge for Kittel purposes and dismissed the appeals (210)-(218).
Core dispute
The FTT granted permission to appeal on three grounds. Ground 1 asserted that the FTT applied the wrong test in concluding that Mr Giller ought to have known that the only reasonable explanation for the transactions was that they were connected to VAT fraud. Ground 2 alternatively asserted that the FTT gave inadequate reasons for its decision (18).
Ground 3 asserted that the FTT made perverse or irrational findings of fact, or findings unsupported by evidence, or made without regard to relevant factors, in relation to: (a) the finding that Mr Giller became aware of VAT fraud in the industry during his employment at Ebrit Labour Services Ltd; (b) the finding that Mr Giller had not carried out checks on suppliers; and (c) the finding of a repeated pattern of supplier failures (18).
Mr Giller also applied on 2 June 2026 to admit new evidence, a witness statement from Mr Darren Wood, a former colleague at Ebrit, said to rebut the FTT's finding on prior awareness of VAT fraud (19), (21). HMRC opposed the application.
Court findings
The Upper Tribunal refused the application to admit new evidence. It held that the evidence failed the first Ladd v Marshall criterion because nothing showed it could not, with reasonable diligence, have been obtained for use before the FTT; the decision not to call Mr Wood was a voluntary tactical choice (24). It also held that admitting the evidence at this stage, on an Edwards v Bairstow challenge to a finding of fact, would be procedurally unfair, giving the Appellants a "second bite at the cherry" (24).
On Grounds 1 and 2, the Tribunal confirmed that the test for constructive knowledge under Kittel remains "knew or should have known", and that the "only reasonable explanation" formulation from Mobilx is one way, but not the only way, for HMRC to establish this, particularly where the taxpayer does not rely on an alternative reasonable explanation (37), (43)-(44). The Tribunal found that the FTT had correctly directed itself in law at [46] and was not obliged to frame its reasoning by reference to the "only reasonable explanation" test (43), (53). The Tribunal also found that the FTT's decision, read as a whole including its detailed findings at [87]-[202] on dealings with five defaulting traders, provided adequate reasons (49), (53).
On Ground 3, the Tribunal rejected each challenge. It found that the FTT had expressly considered and weighed all relevant factors regarding Mr Giller's prior awareness of VAT fraud at Ebrit, and that its conclusion was rational (61)-(65). It found that the FTT was entitled to place limited weight on Gross Payment Status checks, which relate to the Construction Industry Scheme rather than VAT, and had made findings that such checks were in any event not carried out for two of the five suppliers (68)-(71). It found the FTT's treatment of checks made in relation to the fifth supplier, ATC Nationwide, was supported by extensive prior findings and disclosed no error (72)-(74). It found the FTT was entitled, indeed obliged, to take into account the objective pattern of five consecutive defaulting suppliers, irrespective of Mr Giller's subjective awareness of individual deregistrations (79)-(81).
Outcome
The Upper Tribunal dismissed the application to admit new evidence, dismissed Grounds 1 and 2, dismissed Ground 3, and dismissed the appeal in its entirety (54), (82), (84).
Major issues / areas of contention
- Whether the FTT applied the correct legal test for constructive knowledge under Kittel, or wrongly required an 'only reasonable explanation' formulation.
- Whether the FTT gave adequate reasons for finding that Mr Giller had constructive knowledge that the transactions were connected to fraudulent evasion of VAT.
- Whether the FTT's finding that Mr Giller became aware of VAT fraud issues during his prior employment at Ebrit was perverse, irrational or unsupported by evidence.
- Whether the FTT erred in finding that Mr Giller had failed to carry out adequate due diligence checks on suppliers, including reliance on Gross Payment Status.
- Whether the FTT was entitled to take into account a repeating pattern of five consecutive defaulting suppliers as evidence of constructive knowledge.
- Whether new evidence, a witness statement not adduced before the FTT, should be admitted on appeal under the Ladd v Marshall criteria.