The Challenges of Defending MTIC (Kittel) Fraud Allegations

The Challenges of Defending MTIC (Kittel) Fraud Allegations

Drawing on 16 years of experience, CTM has identified 16 strategic pointers that are critical to the successful defence of MTIC (Kittel) fraud allegations.

1. Decision Letter Review

The starting point in any Kittel case is a thorough review of HMRC’s decision letter. This document sets out the basis on which HMRC has denied input tax and must be scrutinised for errors, inconsistencies, and weaknesses.

2. Grounds of Appeal

The grounds of appeal must be carefully drafted to address every aspect of HMRC’s case. Poorly drafted grounds can limit the scope of the appeal and prevent important arguments from being raised at tribunal.

3. Dishonesty Allegations

Where HMRC alleges actual knowledge of fraud, this amounts to an allegation of dishonesty. Such allegations must be properly pleaded and proved to the standard required in civil proceedings. HMRC cannot make vague or unparticularised allegations of dishonesty.

4. Overall Scheme Claims

HMRC frequently allege that the appellant’s transactions formed part of an overall scheme to defraud. These claims must be carefully examined to determine whether HMRC can actually prove the existence of such a scheme.

5. Alternative Bases

HMRC may advance its case on alternative bases. It is essential to identify and address each alternative basis to ensure that the defence is comprehensive.

6. Evidence Review

A meticulous review of all evidence, both HMRC’s and the appellant’s, is fundamental. This includes transaction records, communications, due diligence documentation, and any other relevant material.

7. Further Particulars

Requests for further particulars can be used to compel HMRC to clarify and specify its case. This is particularly valuable where HMRC’s case is vague or insufficiently detailed.

8. Disclosure Requests

Disclosure requests may reveal documents in HMRC’s possession that support the appellant’s case or undermine HMRC’s position.

9. Witness Statements

The preparation of witness statements requires careful consideration. Witnesses must be properly prepared and their evidence must address the key issues in the case.

10. Industry Knowledge

Understanding the industry in which the appellant operates is essential. What may appear suspicious to an outsider may be standard practice within a particular trade.

11. Documentation

The quality and completeness of the appellant’s documentation can be decisive. Good record-keeping and due diligence documentation can demonstrate that the appellant took reasonable steps.

12. HMRC Document Disputes

HMRC’s documents, including visit notes and interview records, should not be accepted at face value. Their accuracy and completeness should be challenged where appropriate.

13. Transaction Circumstances

The circumstances of each transaction must be examined individually. The Mobilx principle establishes that HMRC must demonstrate the connection to fraud for each specific transaction, not merely rely on general assertions about the supply chain.

14. Fairford Directions

Fairford Directions govern the procedural management of MTIC cases and must be properly understood and utilised to ensure the case is managed fairly.

15. Penalties and Personal Liability

Penalties and Personal Liability Notices raise distinct legal issues that require separate consideration and defence strategies.

16. Misfeasance Risks

In cases where HMRC officers have acted improperly, there may be grounds for a claim in misfeasance in public office.

CTM’s Track Record

CTM’s approach is demonstrated by cases such as PTGI v HMRC [2022] UKFTT 20 (TC), where approximately £19 million in denied input tax was successfully challenged at tribunal. This systematic and thorough approach to each of the 16 areas above is what produces results.