Case note: Lynton Exports (Alsager) Ltd v Revenue and Customs Commissioners [2022] UKFTT 00224 (TC)

01 August 2022
Julia Glukhikh


As HMRC continue to apply the Kittel principle to increasing numbers of industries and businesses, this decision reinforces that: 

  • Kittel cases can be won by taxpayers, but the provision of detailed taxpayer evidence (including as to market opportunities and market characteristics) can be crucial.   
  • The Tribunal will not simply accept HMRC’s “suspicions” or “concerns” as proof, and instead will require HMRC to adduce cogent evidence (such as industry comparators) to  demonstrate that the circumstances of particular trading were so different to that present in legitimate trading as to lead to the objective conclusion that the taxpayer knew or should have known of a connection with fraud.  


HMRC denied input tax on the basis that the relevant transactions were connected with a scheme to defraud the Revenue and that the company knew, or should have known, that this was the case.  In other words, HMRC applied what is known as “the Kittel Principle”.

In addition, the Appellant was assessed by HMRC to output tax, and the company’s claim to zero rating of the relevant transactions was denied on the basis that the relevant transactions were connected with a scheme to defraud the Revenue, and the company knew, or should have known, that this was the case. In other words, HMRC applied what is known as “the Mecsek Principle”.

Both sets of assessments were considered and upheld on Review by HMRC. The company appealed to the First-tier Tribunal.

The Decision

The First-tier Tribunal allowed the taxpayer’s  appeal in full. The Tribunal found that HMRC had simply raised various issues in support of the Kittel assessments and then invited the Tribunal to agree with those issues without “advancing sufficient cogent evidence” to discharge the burden of proof. Importantly, the Tribunal stated:

“We acknowledge that most of the issues listed by HMRC were matters that raised concerns and suspicions for Mr Mills and his predecessors as case officers, but in defending the assessments HMRC must go beyond concerns and suspicions, and must advance probative evidence of the issue in question. It is possible to infer relevant facts from circumstantial evidence, but that circumstantial evidence must exist and be presented in a credible and persuasive form.”

One of the “issues” relied on by HMRC was that the taxpayer had received payment for goods from a third party (rather than the company to whom the good had been supplied). The Tribunal rejected HMRC’s suggestion that this was indicative of knowledge or means of knowledge of fraud, stating:  

“This is, we consider, another example of a mobile phone trade warning flag being applied without adequate explanation of why it should also apply to wholesale grocery transactions. We accept the evidence of [the taxpayer] that customers abroad paying Sterling invoices via FX bureaux was something the Company was familiar with for several customers over a period of time, and so this did not raise any suspicions when it occurred on a few of the deals covered by the Disputed Assessments.”

If you require any further information about the application of the Kittel principle, the Mecsek principle, or any other allegations by HMRC of fraud or fraudulent abuse, please do not hesitate to contact Iain MacWhannell (

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Increased Investment in Personal Tax Compliance in the UK (Published in Thought Leaders 4 Private Client)

Advances in technology and increased international fiscal co-operation have made global personal tax compliance initiatives pop up in abundance in recent years. To compound the issue, the Russian invasion of Ukraine and the corresponding economic fallout prompted domestic governments to increase transparency in relation to investments held by wealthy foreign individuals (with a focus on oligarchs).

In the UK, in the context of the cost-of-living crisis, public opinion certainly seems to be in favour of increased accountability for high-net-worth individuals (eg, on 9 October 2022, 63% of Britons surveyed thought that “the rich are not paying enough and their taxes should be increased”).1

HMRC is one of the most sophisticated tax collection authorities in the world and the department is making significant investments in technology in the field of compliance work; they are well placed to take advantage of new international efforts to increase tax compliance, particularly considering the already extensive network of 130 bilateral tax treaties in the UK (the largest in the world).2 The UK was also a founding member of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) forum.

This article discusses the main developments in support of the increased focus on international transparency and personal tax compliance in the UK. There are other international fiscal initiatives, particularly in the field of corporate taxation, but such initiatives are beyond the scope of this article.

It should be noted that a somewhat piecemeal approach, with constant tinkering makes compliance difficult for the taxpayer and is often criticised for lacking the certainty that a stable tax system needs to thrive.

This article was first published with ThoughtLeaders4 Private Client Magazine

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