S&S Consulting Services (UK) Ltd v HMRC: Can a company be re-registered for VAT pending appeal?

15 December 2021

On 26 November 2021, the High Court of Justice issued its judgment in S&S Consulting Services (UK) Ltd, R (On the Application Of) v HM Revenue and Customs [2021] EWHC 3174. The case concerned the issue of availability of injunctive relief in the context of VAT deregistration appeals in the First-tier Tribunal (“FTT"). S&S also made an application for judicial review of HMRC’s decision to deregister it for VAT, which at the time of the hearing, had not yet been considered on the papers.

HMRC cancelled S&S’s VAT registration because it concluded that the company had been principally or solely registered to abuse the VAT system by facilitating VAT fraud. S&S denied any wrongdoing and claimed that it might become insolvent before the hearing of its appeal as a result of the deregistration.

It was also common ground that although S&S had lodged an appeal to the FTT, the FTT had no power to require HMRC to re-register S&S by way of interim relief pending the outcome of the appeal. S&S made an application to the High Court for relief.

Held: Application rejected.

Key points:

  • The decision to grant an injunction in a public law case involves the exercise of discretion which takes into account all relevant matters, including the strength of the case advanced by the party seeking relief, but without applying a rigid test, such as requiring a ‘strong, prima facie case’.
  • The Court considered the difference between the cases concerning alcohol approval schemes (CC&C v Revenue and Customs Commissioners [2015] 1 WLR 4043, R (ABC Ltd) v Revenue and Customs Commissioners [2018] 1 WLR 125) and the process of registering for VAT. It was held that the differences did not warrant a different approach to the Court’s grant of injunctive relief, as the processes involved were, in material terms, the same.
  • The Court reaffirmed that, following the UK’s exit from the EU, Section 42(4) and 42(4A) of the Taxation (Cross Border Trade) Act 2018 specifically preserve the effect of EU law principles preventing the abuse of the VAT system.
  • The Court also reaffirmed the Ablessio principle, under which HMRC is entitled to cancel a person’s VAT registration where it is satisfied that the registration is being used to facilitate fraud on the VAT system. This confirms the criteria previously followed in R. (Ingenious Construction Ltd) v HM Revenue and Customs [2020] EWHC 2255 (Admin).
  • The allegations made by the company, that HMRC broadly misunderstood the facts and failed to consider relevant matters, did not amount to abuse of power, and were in any case points that fall within the scope of the FTT appeal.
  • It is not an absolute rule that HMRC must always give notice of intended VAT de-registration.
  • In respect of the substantive argument, the High Court concluded that “whilst there may be a risk of the Claimant becoming insolvent before the presently listed appeal… it has not shown that there is a sufficiently high probability that that will be so”.
  • Further, the Court indicated approval of HMRC’s arguments on why the balance of convenience and consideration of all relevant factors in the present case comes down in favour of refusing the injunctive relief. The Court noted a question of the overall appropriateness of the order to re-register someone whom HMRC, rightly or wrongly, had found to be facilitating VAT fraud. The Court referred to the decision in R (OWD Ltd (t/a Birmingham Cash and Carry)) v Revenue and Customs Commissioners [2019] 1 WLR 4020 at [70]-[72], where the Supreme Court expressed ‘unease’ at the High Court making an order to safeguard the position of a wholesaler in the circumstances where it would involve the Court requiring HMRC to treat a trader as a fit and proper person when it had concluded that it was not.

HMRC has recently published a policy paper on its approach to tax fraud, as well as new guidance on joint and several liability notices for tax avoidance, tax evasion and repeated insolvency.

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