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Case Note: ‘The approach of the Tax Tribunal to evidential sampling in Kittel cases’

The First-tier Tribunal (Tax Chamber) has recently published a decision of Judge Dean on a sampling application by HMRC in the case of Ezy Solutions Ltd (in liquidation) and Milo Corporation Ltd (in liquidation) v HMRC [2024] UKFTT 00209 (TC). The Decision was released on 9 March 2023 but had not been published until recently.

HMRC applied for a Direction that the parties agree a sample of 50 Mini Umbrella Companies upon which the appeal would be determined. HMRC contended that the sample would limit the scope of the parties’ evidence in the appeal. HMRC argued that it would be disproportionate and “take [HMRC] an inordinate amount of time” serve the evidence in relation to all of the MUCs that had actually supplied the Appellant.

The Appellants argued that a representative sample could not be agreed until all of the evidence in relation to the MUCs had been served and that in a Kittel case HMRC are required to prove all of the fraud, tax losses, and connections upon which they relied.

Judge Dean refused HMRC’s application and stated at [38]:

“It is a fundamental principle of natural justice that a party must know the case against it. I cannot see how in circumstances where HMRC propose not to serve the evidence which formed the basis of its decisions, the Appellants could form a view as to whether any sample is representative or whether there is commonality.”

Judge Dean also stated at [41] that she considered HMRC’s argument that serving their evidence would take “an inordinate amount of time” to be insufficient to justify their application.

More recently, in a case management decision in Horizon Contracts Limited (in liquidation) & Others v HMRC (unreported), Judge Poole followed Judge Dean’s reasoning and stated that ‘sampling’ may be “an appropriate way to proceed for the purposes of the ultimate hearing” but found that this was a matter to be resolved at a later stage once “the full evidence upon which HMRC rely has been disclosed to the Appellants”.