Anti-avoidance ― disallowing input tax

Produced by Tolley

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Anti-avoidance ― disallowing input tax
  • Background
  • What is the Kittel principle?
  • How will HMRC prove the Kittel principle is satisfied?
  • Demonstrating fraudulent evasion of VAT
  • Transaction is connected with fraudulent evasion of VAT
  • Knew or should have known
  • How is the input tax disallowed?
  • Appeals
  • Practical points

Anti-avoidance ― disallowing input tax

This guidance note provides a summary of one of the interventions that HMRC can use where it believes that the business is involved in fraudulent activities.


The entitlement to deduct input tax, and hence the entitlement to the right to repayment where input tax exceeds output tax, is fundamental to the operation of the UK VAT system. If a VAT registered business incurred input tax that is properly allowable, it will be entitled (subject to certain rules) to offset it against the business’ output tax liability and, if the input tax credit due to the business exceeds the output tax liability, it can make a claim for a repayment. However, a VAT registered business that claims input tax on transactions which it ‘knew or should have known’ were ‘connected with fraudulent evasion of VAT’, it shall be denied the right to claim that input tax.

The principle is set out in the CJEU judgement in Axel Kittel & Recolta Recycling SPRL (Kittel) and these are summarised below.

What is the Kittel principle?

In the case of Kittel, the CJEU ruled that an input tax claim should be disallowed if the taxable person knew or ought to have known that the transaction was connected to fraudulent tax evasion. Even if the taxable person did not benefit or receive a profit due to this fraud, they could still be considered as an accomplice.

The CJEU summary stated the following:

‘Where a recipient of a supply of goods is a taxable person who did not and could not know that the transaction concerned was connected with a fraud committed by the seller, Article 17 of Sixth Council Directive must be interpreted as meaning that it precludes a rule of national law under which the fact that the contract of sale is void ― by reason of a civil law provision which renders that contract incurably void as contrary to public pol

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