Here to help, not to judge
Call us on 0800 011 9625
July's round up of the latest tax investigation news and cases:
A London construction company has lost an appeal over recovery of nearly £1m in input tax as transactions were linked to fraudulent invoices and Kittel fraud.
At the First Tier Tribunal (FTT), the owner of Harry Construction Limited (HCL), based in north London, accepted that "the VAT losses arose through dishonesty on the part of the defaulting traders" but attempted to blame HMRC for failing to alert him about the risks.
HCL, a commercial construction business, appealed against several HMRC decisions on input tax issued on 1 February 2019, relating to three separate notifications. In total, the input tax in dispute was £927,987, which HCL claimed should have been repayable by HMRC.
Two instances related to HMRC's decisions to deny the company the right to deduct input tax totalling £705,741 over VAT periods 10/15-07/18 on the basis that the company "knew or should have known that its transactions upon which the input tax reclaim was based were connected with VAT fraud."
HCL also disputed a third refusal decision by HMRC amounting to a further £222,246 across VAT periods 10/15, 01/16, 04/16, 07/16, 10/16, 01/17, 04/17, 07/17, 10/17, 01/18 and 07/18, where HMRC asserted that the invoices from UP Construct Ltd upon which the input tax reclaim was based were invalid.
Under law, a taxable person has a right to deduct input tax, which includes VAT on supplies under the Principal VAT Directive (PVD). However, under the Kittel principle, this right can be lost where the taxable person knew or should have known that the purchases were connected with the fraudulent evasion of VAT.
At the eight-day tribunal, HMRC presented evidence of 12 companies involved in the HCL supply chain that were connected with fraudulent invoices, some of which were "buffer traders" positioned between the arm's length fraudulent trader and HCL. All 12 companies had been deregistered over time as HMRC discovered they were evading VAT.
HMRC officers presented evidence of communications with HCL's director, Singh, warning of the fraud. On 3 July 2012, HMRC sent HCL a "veto letter" regarding its use of a business called Call Premier. The letter informed HCL that Call Premier had been deregistered for VAT purposes, adding: "Please note that any input tax claimed in relation to transactions involving this company may be subject to verification." The letter also directed the company to information on due diligence.
The following day, on 4 July 2012, HMRC began investigating HCL because it had made payments totalling £466,199 to Call Premier. An onsite meeting was held at HCL's accountants' premises where HMRC discussed the labour issues. HCL explained that until a year previously, the company employed staff directly but switched to external providers "because the staff/workers were not being reliable."
The company, represented by Tim Brown of counsel, accepted that there had been "a VAT loss in each of these transaction chains and that there was a connection between that default and HCL's purchases," and that "the VAT losses arose through dishonesty on the part of the defaulting traders."
However, Singh testified that he only became aware of the practice of subcontracting labour in the construction industry around 2011/12 and only became aware of VAT fraud problems in the construction industry when he received HMRC officer Hammouda's letter in October 2017, despite various HMRC veto letters sent to him.
Singh emphasized that he had contacted his accountants about all letters regarding due diligence as "the business was relying on them for advice and support related to its tax affairs."
Singh criticized HMRC for its failure to stop VAT fraud prevalent across the construction industry, telling the tribunal: "We only can do so much, we can do so much checks on them by getting verifications on VAT and tax and all that. The rest is all down to the HMRC. If they know that – they're doing the checks on the companies, why don't they make us aware at that time?"
Tribunal Judge Mark Baldwin noted that HCL's co-owner and director, Harvinder Singh, "had a tendency to resort to stock answers, along the lines of 'HCL had done all the due diligence it could' and the current situation is largely/entirely of HMRC's making for not telling HCL what to do."
On the Kittel appeal, Brown argued that "HMRC have not produced any evidence that there was an 'overall scheme to defraud the Revenue' perpetrated through supply chain VAT fraud. Even if there was an overall scheme, HCL denies either knowing of it or being knowingly involved in it."
Beyond the due diligence failures, the invoices supporting VAT recovery were also found to be invalid. Judge Baldwin stated: "We do not consider that an invoice which simply refers to 'valuation total' comes anywhere near providing sufficient information to enable an independent observer to be satisfied as to the identification and quantification of the services supplied.
"Someone seeking to find out the nature and quantity of what was supplied would not even be able to begin to answer that question from the invoice or any other document it referred to, let alone reach a conclusion. The invoices clearly do not meet the requirement in regulation 14(g)."
The tribunal dismissed the appeal on all grounds and rejected the appellant's claim that HMRC was being "unreasonable."
Her Majesty's Revenue and Customs (HMRC) has introduced stringent new regulations that will grant tax authorities unprecedented access to detailed cryptocurrency transaction data from trading platforms, effective from January 2026.
The comprehensive regulations form part of the OECD Cryptoasset Reporting Framework (CARF) and mandate that cryptocurrency platforms share extensive client transaction information with tax authorities to combat tax evasion.
Starting 1 January 2026, UK cryptocurrency holders must provide personal details to crypto service providers or face penalties of up to £300 from HMRC. This regulatory change represents a significant shift in how cryptocurrency transactions are monitored and taxed.
HMRC has already implemented full disclosure requirements on self-assessment forms for the 2024-25 tax year. Taxpayers who own cryptocurrencies such as Bitcoin, Ethereum, or Dogecoin must now include any crypto gains or income in their tax returns through a new dedicated section in the capital gains pages.
Cryptocurrency holders should be aware that capital gains tax (CGT) may be due when selling or exchanging crypto assets if a gain is realised. Additionally, income tax and national insurance could apply to cryptocurrency received from employment, mining, staking, or lending activities.
HMRC stated that the "new rules will help unmask anyone evading tax due on their crypto profits. Those who don't comply risk a £300 fine from HMRC."
Once data is received from service providers, HMRC will be able to identify individuals who have not been correctly paying tax on their cryptocurrency profits.
The Treasury estimates that these measures will raise up to £315 million in unpaid tax by April 2030—an amount equivalent to funding more than 10,000 newly-qualified nurses for a year.
Cryptocurrency values have experienced significant growth since the election of President Donald Trump, who has expressed strong support for the sector, marking a departure from earlier US policy positions.
Bitcoin holders have witnessed substantial value increases over the past year, with prices rising from £38,000 in August 2024 to £86,000 in January 2025, with the latest price standing at £80,000.
Recent figures from the Financial Conduct Authority (FCA) reveal that seven million people—12% of the UK population—own some form of digital currency, representing an increase from 10% in 2023.
Service providers will begin collecting user activity data from January 2026 and will face fines of £300 per user for failure to disclose information or for submitting inaccurate or incomplete reports.
Danielle Ford, partner and head of tax disputes at HaysMac, commented: "HMRC has always maintained a strong interest in cryptoassets, not least because of their opacity for users. Whilst HMRC first published their view of the tax treatment of crypto in December 2018, it has previously not had the information available to police this, however the CARF will be a game-changer in this regard. These new measures will mean that rather than just having details of disposals in limited circumstances, HMRC will have full details of UK users of crypto including all transactions and details of their held assets."
From 1 January, crypto service providers, platforms, and trading exchanges must collect and report to HMRC:
The CARF is being adopted by 52 countries, with the UK among the first to implement these new regulations. The EU, Jersey, Guernsey, Isle of Man, South Africa, and Uganda are set to implement by 2027, while the US, Bahamas, British Virgin Islands, St Vincent, Seychelles, Singapore, Thailand, Turkey, Hong Kong, and UAE are scheduled to begin information exchange by 2028.
Notable absences include Australia, Argentina, El Salvador, India, Panama, and Vietnam, which have been identified by the OECD as crypto hubs but have not yet signed up to CARF.
Jonathan Athow, HMRC's director general for customer strategy, stated: "These new reporting requirements will give us the information to help people get their tax affairs right. I urge all cryptoasset users to check the details you will need to give your provider."
While HMRC offers a cryptoasset disclosure service for voluntary disclosures, tax experts recommend that cryptocurrency investors potentially affected by CARF should seek professional advice before deciding to use the CDS.
Get in touch with us for confidential and no-obligation tax advice.
Call us on:
0800 011 9625
Email us at:
scott.gilbert@gilberttax.co.uk