Impact Contracting Solutions Limited v The Commissioners for HMRC [2025] EWCA Civ 623

[2025] EWCA Civ 623Case No CA-2023-002063
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
MR JUSTICE EDWIN JOHNSON AND JUDGE THOMAS SCOTT
[2023] UKUT 00215 (TCC)
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 16/05/2025
Before
LORD JUSTICE MOYLANLORD JUSTICE POPPLEWELLLADY JUSTICE FALK
Between
IMPACT CONTRACTING SOLUTIONS LIMITEDAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondents
Daniel Margolin KC and David Bedenham KC (instructed by Joseph Hage Aaronson LLP) for AppellantHoward Watkinson and Joshua Carey (instructed by HMRC Solicitor’s Office and Legal Services) for RespondentsHearing Hearing date: 1 May 2025
Approved JudgmentThis judgment was handed down remotely at 10.00am on 16 May 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives..............................

Introduction and background

[1]This appeal concerns the extent of HMRC’s power to deregister a person for VAT purposes where that person has facilitated VAT fraud. The Appellant, Impact Contracting Solutions Limited (“ICSL”), challenges decisions by the Upper Tribunal (“UT”) to the effect that: a) HMRC are permitted to deregister a person who has not themself fraudulently evaded VAT but has facilitated the VAT fraud of another, where the person to be deregistered knew or should have known that they were facilitating the VAT fraud of another; b) deregistration may occur notwithstanding that at the relevant time the person was also making taxable supplies which are unconnected with fraud and which would otherwise result in a liability to be registered; and c) deregistration in those circumstances would not of itself breach the EU principles of proportionality, fiscal neutrality or legal certainty.[2]The UT’s decision ([2023] UKUT 00215 (TCC), Edwin Johnson J and Judge Thomas Scott) was made on appeal from a decision of the First-tier Tribunal (“FTT”) ([2022] UKFTT 47 (TC), Judge Geraint Williams) that determined issues of law as preliminary issues. We do not, therefore, have the benefit of findings of fact, and only limited detail can be gleaned from the FTT’s decision and HMRC’s own decision that was the subject of the original appeal to the FTT.[3]The FTT recorded at [2] that ICSL was incorporated and registered for VAT from 2015. It operated in the labour provision market. Its customers were temporary work agencies and its suppliers were approximately 3,300 companies, referred to as “mini-umbrella companies” (“MUCs”), which supplied labour. HMRC formed the view that the arrangements between ICSL and the MUCs were contrived, and that the MUCs had failed properly to account for VAT on their supplies to ICSL.[4]On 16 September 2019, HMRC wrote to ICSL. The letter communicated HMRC’s denial of a deduction for around £47m of input tax claimed on the supply of labour between January 2016 and April 2019, relying on Joined Cases C-439/04 and C-440/04 Kittel v Belgium and Belgium v Recolta Recycling SPRL [2006] ECR I-6161, [2008] STC 1537 (“Kittel”), on the basis that HMRC were satisfied that the supplies were connected with the fraudulent evasion of VAT and that ICSL knew or should have known that.[5]The letter explained that in reaching their decision HMRC had taken into account, among other things, a lack of cooperation by ICSL, in particular in failing to provide many requested records, “clear contrivance” involving MUC directors being changed to a person based offshore and evidence of “dominant control” of the MUCs by ICSL, back to back trading by the MUCs at a loss with no value added, fraudulent use by the MUCs of the VAT flat rate scheme (under which certain small traders may pay VAT at a fixed rate), use by MUCs of false addresses, and failure by the majority of the MUCs to account for VAT.[6]The letter also informed ICSL of the cancellation of its VAT registration with immediate effect, on the basis that it was “using its VAT registration solely or principally for fraudulent purposes”.[7]ICSL appealed against both the denial of the input tax deduction and the deregistration decision. With the parties’ agreement, the FTT subsequently directed a hearing of preliminary issues in the deregistration appeal, essentially as to the scope of the principle established by the decision of the Court of Justice of the European Union (the “CJEU”) in Case C-527/11 Valsts ieņēmumu dienests v Ablessio SIA EU:C:2013:168, [2013] BVC 109 (“Ablessio”), the facts of which concerned a refusal to register a person for VAT purposes.[8]It is worth clarifying that ICSL does not accept that the supplies to it by the MUCs were connected with fraud or that it knew or should have known about any fraud that may be established. Depending on the outcome of the appeal, these and other factual matters would remain to be established in due course.[9]For the reasons explained below, I have reached the conclusion that the appeal should be dismissed.

The legislation

[10]Both HMRC’s decision to deregister ICSL and the appeal against that decision to the FTT were made before 31 December 2020, so it is common ground that EU law remains applicable: see in particular s.4 of the European Union (Withdrawal) Act 2018 (“EUWA”) as enacted, read with paragraph 38 of Schedule 8 to that Act and s.16 of the Interpretation Act 1978. However, only decisions of the CJEU before 31 December 2020 form part of retained law: s.6 EUWA.[11]Since it is now also common ground that the resolution of the appeal turns on principles of EU case law, I will confine my references to legislation to the minimum.[12]In outline, the relevant Directive is Council Directive 2006/112/EC of 28 November 2006 (the Principal VAT Directive, or “PVD”) and the principal domestic legislation is the Value Added Tax Act 1994 (“VATA”). Article 9 of the PVD defines a “taxable person” as “any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.” Article 213 requires taxable persons to state when their activity as such commences, changes or ceases. By Article 214 (and subject to specified exceptions), Member States are obliged to ensure that taxable persons who supply goods or services in their territory are identified by a number. However, under Article 273:
“Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the requirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.”
[13]Section 3 of VATA defines a taxable person as someone who is, or is required to be, registered under that Act. Under paragraph 1 of Schedule 1, registration is generally required where annual taxable supplies exceed or are anticipated to exceed a threshold amount. Paragraph 13 of Schedule 1 deals with cancellation of registration, and relevantly provides:
“(2) Subject to sub-paragraph (5) below, where the Commissioners are satisfied that a registered person has ceased to be registrable, they may cancel his registration with effect from the day on which he so ceased or from such later date as may be agreed between them and him. … (5) The Commissioners shall not under sub-paragraph (2) above cancel a person’s registration with effect from any time unless they are satisfied that it is not a time when that person would be subject to a requirement, or entitled, to be registered under this Act.”
It was not suggested that this provision itself empowered HMRC to deregister ICSL.[14]In connection with EU exit, specific provision was made about abuse of the VAT system by s.42 of the Taxation (Cross-border Trade) Act 2018, which relevantly provides:
“42. EU Law Relating to VAT … (3) Further provision relevant to the law relating to value added tax is made by the European Union (Withdrawal) Act 2018: see, for example, section 6 of that Act (interpretation of retained EU law). (4) One of the consequences of the provision made by that Act is that the principle of EU law preventing the abuse of the VAT system (see, for example, the cases of Halifax and Kittel) continues to be relevant, in accordance with that Act, for the purposes of the law relating to value added tax. (4A) Accordingly, that principle may continue to be relied upon in determining any matter relating to value added tax (including in determining the effect of any provision made by or under an enactment).”
[15]Subsection (4A) was inserted by s.98 of the Finance Act 2021, with retrospective effect. Halifax and Kittel are considered below.

The FTT and UT decisions in outline

[16]The preliminary issues before the FTT were as follows:
“Question 1 Does the principle in Ablessio apply only to a party that has itself fraudulently defaulted on its VAT obligations, or does it similarly apply to a party who has facilitated the VAT fraud of another party? Question 2 If the principle in Ablessio does apply to a party who has facilitated the VAT fraud of another party, is simple facilitation sufficient, or must it additionally be proved that: (a) the facilitating party was itself dishonest; or (b) the facilitating party knew that it was facilitating the fraud, and/or (c) the facilitating party should have known that it was facilitating the fraud?”

Question 2

[17]The FTT concluded as follows (as summarised at [106]-[108] of its decision):
“Question 1 106. The principle in Ablessio applies both to a party that has fraudulently defaulted on its VAT obligations and to a party who has facilitated the VAT fraud of another party. Question 2 107. Simple facilitation by a party of the VAT fraud of another is not sufficient to apply the principle in Ablessio. 108. It is not necessary to prove that the facilitating party was itself dishonest. It must, however, be proved that the facilitating party knew or should have known that it was facilitating the VAT fraud of another party.”

Question 2

[18]There were four grounds of appeal to the UT, summarised in its decision at [5]:
“(1) Ground 1: The FTT erred in law when finding that the principle in Ablessio could be extended to deregistering existing taxable persons which did not themselves fraudulently evade VAT and in particular those which conducted taxable transactions which were not connected with VAT fraud. In other words, it misinterpreted the principles established in Ablessio and that they could be extended to persons already registered for VAT. (2) Ground 2: The FTT erred when it found it was bound by the decisions in R (Thames Wines Ltd) v HMRC [2017] EWHC 452 (Admin) (“Thames Wines”) and R (Ingenious Construction Ltd) v HMRC [2020] EWHC 2255 (Admin) (“Ingenious”) . Both decisions were in respect of judicial review matters, not substantive VAT law. Additionally, it should be noted that both decisions were pre-permission and therefore non-binding. (3) Ground 3: The FTT erred when it found it was proportionate for tax authorities to deregister a taxpayer on the basis it knew or ought to have known it was facilitating fraud by another party. It is disproportionate to do so where the taxpayer had made and continues to make legitimate taxable supplies and contradicts the principles of equal treatment and fiscal neutrality and it makes the correct application of VAT impossible. (4) Ground 4: Reading the domestic legislative scheme as somehow providing, implicitly, a general power of deregistration in cases of misuse is to adopt an interpretation that is contra legem. Accordingly, the FTT erred in concluding that Ablessio permits HMRC to deregister a taxable person who knew or should have known that it was facilitating the VAT fraud of another party.”
[19]The UT dealt with ground 4 first and grounds 1 and 2 together. Its conclusions were summarised at [120]: “Ground 4: The application by HMRC of the Ablessio principle is not contra legem or otherwise prohibited by the VAT legislation where it is applied to deregister a taxpayer who(1) has either fraudulently defaulted on its VAT obligations or facilitated the VAT fraud of another party and(2) at the relevant time or times has also made taxable supplies unconnected with such fraud or facilitation of fraud and which would result in a liability to be registered under paragraph 1(1) Schedule 1 VATA 1994 . Grounds 1 and 2: The principle in Ablessio applies: (a) to the deregistration for VAT purposes by HMRC of a person as well as to a refusal by HMRC to register a person. (b) to enable the deregistration of a person for VAT purposes who has facilitated the VAT fraud of another, where the person to be deregistered knew or should have known that it was facilitating the VAT fraud of another. (c) notwithstanding that the person whom HMRC seek to deregister has at the relevant time or times also made taxable supplies unconnected with such facilitation of fraud and which would result in a liability to be registered under paragraph 1(1) Schedule 1 VATA 1994. Ground 3: Deregistration pursuant to Ablessio of a person who has merely facilitated fraud and who has also made or intends to make taxable supplies that are not connected with fraud would not of itself breach any of the EU principles of proportionality, fiscal neutrality or legal certainty.” (a) to the deregistration for VAT purposes by HMRC of a person as well as to a refusal by HMRC to register a person. (b) to enable the deregistration of a person for VAT purposes who has facilitated the VAT fraud of another, where the person to be deregistered knew or should have known that it was facilitating the VAT fraud of another. (c) notwithstanding that the person whom HMRC seek to deregister has at the relevant time or times also made taxable supplies unconnected with such facilitation of fraud and which would result in a liability to be registered under paragraph 1(1) Schedule 1 VATA 1994.

The grounds of appeal

[20]The two grounds of appeal to this court can be summarised as follows: Ground 1: The UT erred as to the scope and extent of the principle derived from Ablessio. Properly understood,(i) it does not extend to permitting the deregistration of a taxable person who has not themself fraudulently evaded VAT nor had the intention to do so; and(ii) in any event it does not extend to permitting the deregistration of such a taxable person who is making or intends to make taxable supplies that are not connected with fraud. Ground 2: The UT erred in concluding that deregistration of a “mere facilitator” of VAT fraud that also makes or intends to make supplies unconnected with fraud would not systematically undermine the right to deduct or breach the EU principles of proportionality, fiscal neutrality and legal certainty.[21]It will be seen that these grounds of appeal broadly correspond to grounds 1 and 3 of the grounds of appeal to the UT. They do not, however, entirely correspond to the preliminary issues before the FTT.

The Appellant’s case in summary

[22]In his oral submissions, Mr Margolin KC, for ICSL, clarified ICSL’s case as follows: a) ICSL’s primary case is that Ablessio only applies to persons who fraudulently default on their own VAT obligations (or intend to do so). In particular, the “knew or should have known” formula derived from Kittel has no application to registration or deregistration. b) If (contrary to ICSL’s primary case) facilitation of fraudulent default by another person of their VAT obligations is within Ablessio, that is only the case where the facilitator has actual knowledge of the fraud, amounting to dishonesty. c) In any event, a facilitator of fraudulent VAT default by another may not be deregisteredif they intend to make any “untainted” supplies, being supplies that are unconnected with fraud.[23]Mr Margolin submitted that, although the principle in Ablessio does extend beyond a refusal of registration to permitting deregistration, it is expressly limited to fraudulent defaulters. This can be seen from the language used in that decision and the fact there has been no expansion of it in later cases. In particular, there is no indication that the Kittel formula is applicable.[24]Further, if Ablessio did extend to facilitators at all it could only do so where there is no intention to make untainted supplies, because it would otherwise systematically undermine the right to deduct input tax and breach the principle of fiscal neutrality. It would be disproportionate. It would also breach the principle of legal certainty, at least where untainted supplies would be above the compulsory VAT registration threshold.

The EU case law

[25]Although the focus of ICSL’s case throughout has been the scope of Ablessio, the UT correctly identified at [23] that Ablessio can only properly be understood in the context of other EU case law considering abuse of the VAT system. The most relevant starting point is Case C-255/02 Halifax plc v Commissioners of Customs & Excise [2006] Ch 387, [2006] STC 919 (“Halifax”). This was followed by Kittel and then by Ablessio. Both parties also relied on later CJEU decisions that consider them. I will consider them in chronological order, starting with Halifax.[26]In summary, the seminal decision in Halifax established the existence of an abuse of law principle in a VAT context. The most significant passage of the judgment for present purposes is as follows (citations omitted):
“68. …according to settled case law, Community law cannot be relied on for abusive or fraudulent ends... 69. The application of Community rules cannot be extended to cover abusive practices by economic operators, that is to say transactions carried out not in the context of normal commercial operations, but solely for the purpose of wrongfully obtaining advantages provided for by Community law... 70. That principle of prohibiting abusive practices also applies to the sphere of VAT. 71. Preventing possible tax evasion, avoidance and abuse is an objective recognised and encouraged by the Sixth Directive...”
[27]Thus, Halifax establishes that VAT (like Community law in general) is subject to an abuse principle, namely that it cannot be relied on for “abusive or fraudulent ends”. Indeed, the Sixth Directive (now the PVD) treats the prevention of tax evasion, avoidance and abuse as an objective which is “recognised and encouraged” ([68], [70] and [71]).[28]The CJEU went on to emphasise the requirement of legal certainty and the freedom of taxable persons to choose what transactions to undertake, before saying:
“74. In view of the foregoing considerations, it would appear that, in the sphere of VAT, an abusive practice can be found to exist only if, first, the transactions concerned, notwithstanding formal application of the conditions laid down by the relevant provisions of the Sixth Directive and the national legislation transposing it, result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions. 75. Secondly, it must also be apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain a tax advantage. As the Advocate General observed in para 89 of his opinion, the prohibition of abuse is not relevant where the economic activity carried out may have some explanation other than the mere attainment of tax advantages.”
[29]We are not here directly concerned with whether the conditions in [74] and [75] are satisfied, since the working assumption in deciding the preliminary issues is the arrangements involved evasion, rather than the sort of avoidance that is the focus of those paragraphs. I have included them as part of the relevant context.[30]Kittel, which was decided a few months after Halifax, concerned challenges to the denial of deductions for input tax by the Belgian tax authorities on the grounds that the relevant persons had participated in a missing trader intra-Community (“MTIC”) fraud designed to evade, or wrongly recover, VAT. Under national law the transactions were void, but the CJEU held that this could not have the effect of denying a deduction if the recipient of the supply did not and could not know about the fraud. However:
“53. By contrast, the objective criteria which form the basis of the concepts of ‘supply of goods effected by a taxable person acting as such’ and ‘economic activity’ are not met where tax is evaded by the taxable person himself… 54. As the court has already observed, preventing tax evasion, avoidance and abuse is an objective recognised and encouraged by the Sixth Directive... Community law cannot be relied on for abusive or fraudulent ends... 55. Where the tax authorities find that the right to deduct has been exercised fraudulently, they are permitted to claim repayment of the deducted sums retroactively... It is a matter for the national court to refuse to allow the right to deduct where it is established, on the basis of objective evidence, that that right is being relied on for fraudulent ends… 56. In the same way, a taxable person who knew or should have known that, by his purchase, he was taking part in a transaction connected with fraudulent evasion of VAT must, for the purposes of the Sixth Directive, be regarded as a participant in that fraud, irrespective of whether or not he profited by the resale of the goods. 57. That is because in such a situation the taxable person aids the perpetrators of the fraud and becomes their accomplice. 58. In addition, such an interpretation, by making it more difficult to carry out fraudulent transactions, is apt to prevent them. 59. Therefore, it is for the referring court to refuse entitlement to the right to deduct where it is ascertained, having regard to objective factors, that the taxable person knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, and to do so even where the transaction in question meets the objective criteria which form the basis of the concepts of ‘supply of goods effected by a taxable person acting as such’ and ‘economic activity’.”
[31]Kittel was a groundbreaking decision in its introduction of the “knew or should have known” formulation, and effectively developed Halifax in that respect. It was a response by the CJEU to the very significant losses being suffered by national tax authorities as a result of MTIC fraud: see Mobilx Ltd (in administration) v Revenue and Customs Commissioners [2010] EWCA Civ 517, [2010] STC 1436 at [1] for some indication of the scale of the problem, and for a more detailed discussion of MTIC fraud (and a reference to the huge sums involved) see the Advocate General’s opinion in Joined Cases C-131/13, C-163/13 and C-164/13 Staatssecretaris van Financiën v Schoenimport ‘Italmoda’ Mariano Previti vof and Turbu.com BV; Turbu.com Mobile Phone’s BV v Staatssecretaris van Financiën (“Italmoda”) EU:C:2014:2455. As Mr Watkinson, for HMRC, pointed out these sophisticated frauds do not simply rely on those who directly default on their VAT obligations, and who might readily be replaced. Others involved in the transactions perform significant roles.[32]Critically, the approach adopted by the CJEU was to treat participants in transaction chains who knew or should have known about a fraud as participants in the fraud: Kittel at [56] and [57]. This was reiterated in the CJEU’s judgment in Italmoda in the following terms at [64] (emphasis supplied):
“…not only the situation in which tax evasion is directly committed by the taxable person himself but also the situation in which a taxable person knew, or should have known, that, through the transaction concerned, it was participating in a transaction involving evasion of VAT committed by the supplier or by another trader acting upstream or downstream in the supply chain, is considered to constitute fraudulent conduct on the part of a taxable person…”
[33]The CJEU clearly had in mind the practical impact this would have in strengthening tax authorities’ hands (since they would not have the burden of proving actual fraud) and making MTIC fraud harder to implement: Kittel at [58]. As the Advocate General observed in Italmoda at paragraphs 46 and 47 of his opinion, the Kittel formulation incorporates a duty of due diligence in addition to honesty: he described it as an (effectively extended) principle of good faith. Indeed, it is now well-established in this jurisdiction that an allegation using the Kittel formulation is not an allegation of dishonesty or fraud: Revenue and Customs Commissioners v Citibank NA [2017] EWCA Civ 1416, [2018] 1 WLR 1524, at [85], [90] and [92].[34]Ablessio concerned a refusal by the Latvian tax authority to register a company for VAT on the basis that a) it did not consider that the company had the resources to carry on the declared activity, and b) the company’s shareholder had made previous applications to register undertakings which had not carried on real economic activity. The CJEU concluded that registration could not be refused solely on the grounds relied on, but that it could be refused in certain circumstances.[35]The CJEU first said this about the VAT registration system:
“18. The essential aim of identifying taxable persons, as provided for under Article 214 of Directive 2006/112, is to ensure that the VAT system operates properly… 19. In that regard, the Court has already held that the allocation of a VAT identification number provides proof of the tax status of the taxable person for the purposes of applying VAT and simplifies the inspection of taxable persons with a view to ensuring the correct collection of the tax. Under the transitional arrangements for tax applicable to trade within the European Union, the identification of taxable persons subject to VAT by means of an individual number also facilitates the determination of the Member State in which the final consumption of the goods delivered takes place... 20. In addition, the VAT identification number is an important piece of evidence of the operations carried out. Indeed, Directive 2006/112 requires, in a number of provisions relating, in particular, to invoicing, declarations and summary statements, that this identification number of the taxable person or the recipient of the goods or services be referred to in those documents.”
[36]The CJEU observed at [22] that Article 214 did not stipulate the conditions that may be placed on the issue of a VAT number and that Article 213 indicated an element of discretion, and went on:
“23. However, that discretion cannot be unrestricted. Although it is possible for a Member State to refuse to assign an individual number to a taxable person, it cannot do so without legitimate grounds.”
Further, the concept of “taxable person” was to be given a broad interpretation ([24]-[26]), such that:
“27. Consequently, Directive 2006/112, and particularly Articles 213 and 214, preclude the tax authority of a Member State from refusing to assign a VAT identification number to applicants solely on the ground that they are not in a position to show that they have at their disposal the material, technical and financial resources to carry out the economic activity declared at the time of submitting their application for registration on the register of taxable persons. 28. However, according to settled case-law of the Court, Member States have a legitimate interest in taking appropriate steps to protect their financial interests, and the prevention of tax evasion, avoidance and abuse is an objective recognised and encouraged by Directive 2006/112… [citing Halifax among other cases]. 29. Furthermore, Member States are obliged to guarantee the accuracy of the entries in the register of taxable persons to ensure that the VAT system operates properly. It therefore falls to the competent national authority to check an applicant's status as a taxable person before it assigns that person a VAT identification number... 30. Therefore, Member States can, in accordance with Article 273, first paragraph, of Directive 2006/112, legitimately take measures that are necessary to prevent the misuse of identification numbers, in particular by undertakings whose activity, and consequently their status as taxable persons, is purely fictitious. However, these measures must not go beyond what is necessary for the correct collection of the tax and the prevention of evasion, and they must not systematically undermine the right to deduct VAT, and hence the neutrality of that tax…”
[37]The CJEU said this about proportionality and the task of the national court:
“34. In order to be considered proportionate to the objective of preventing evasion, a refusal to identify a taxable person by an individual number must be based on sound evidence giving objective grounds for considering that it is probable that the VAT identification number assigned to that taxable person will be used fraudulently. Such a decision must be based on an overall assessment of all the circumstances of the case and of the evidence gathered when checking the information provided by the undertaking concerned. 35. It is for the referring court – which alone has jurisdiction both to interpret the national law and to find and assess the facts in the case before it and, in particular, the way in which that law is applied by the tax authority… – to determine whether the national measures are compatible with European Union law, in particular the principle of proportionality. The Court of Justice is competent only to provide that court with the criteria for the interpretation which may enable it to make such a determination as to compatibility… 36. In the circumstances of the case in the main proceedings, it must be noted that the fact that a taxable person is not in possession of the material, technical and financial resources to carry out the declared economic activity is not, in itself, sufficient to demonstrate that it is probable that the latter intends to commit tax evasion. However, it cannot be excluded that circumstances of this nature, corroborated by the presence of other objective elements leading to the suspicion of the taxable person’s fraudulent intentions, may constitute factors that have to be taken into account as part of the overall assessment of the risk of evasion. 37. Similarly, Directive 2006/112 makes no provision for a limitation on the number of applications for individual VAT identification numbers that may be made by the same person acting on behalf of different legal entities. Nor does the directive permit the inference that the transfer of control of these legal entities after they have been identified for VAT purposes constitutes an illegal activity. However, such circumstances can also be taken into account as part of an overall assessment of the risk of evasion. 38. It is for the referring court to examine whether, having regard to all the circumstances of the case, the tax authority has established to the requisite legal standard the existence of sound evidence from which it may be concluded that the application for registration in the register of taxable persons subject to VAT by Ablessio might result in the misuse of the identification number or other VAT fraud.”
[38]The dispositif reads as follows, reflecting the CJEU’s conclusion at [39]:
“Articles 213, 214 and 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the tax authority of a Member State may not refuse to assign a value added tax identification number to a company solely on the ground that, in the opinion of that authority, the company does not have at its disposal the material, technical and financial resources to carry out the economic activity declared, and that the owner of the shares in that company has already obtained, on various occasions, such an identification number for companies which never carried out any real economic activity, and the shares of which were transferred immediately after obtaining the individual number, where the tax authority concerned has not established, on the basis of objective factors, that there is sound evidence leading to the suspicion that the value added tax identification number assigned will be used fraudulently. It is for the referring court to assess whether that tax authority provided serious evidence of the existence of a risk of tax evasion in the case in the main proceedings.” (Emphasis supplied.)
The scope of the decision in Ablessio is considered below.[39]Italmoda, like Kittel, concerned MTIC fraud. It was relied on heavily by Mr Watkinson in support of his argument that the approach in Kittel also extended to registration and deregistration. In Italmoda there was no national law providing for a denial of the right to deduct input tax in the case of involvement in fraudulent evasion, and further what was in issue was not only input tax deductions, as in Kittel, but also rights to exemption and to refunds of VAT under other provisions of the Sixth Directive.[40]The CJEU repeated that preventing possible tax evasion, avoidance and abuse was an objective recognised and encouraged by the Sixth Directive and that EU law cannot be relied on for abusive or fraudulent ends (see at [42] and [43], citing Halifax and Kittel, and [68]). This also applied to the right to exemption ([45]). Further:
“46. Thirdly, as the Advocate General stated in points 50 to 52 of his Opinion, in so far as any refusal of a right under the Sixth Directive reflects the general principle, mentioned in paragraph 43 of the present judgment, that no one may benefit from the rights stemming from the Union’s legal system for abusive or fraudulent ends, such a refusal is the responsibility, in general, of the national authorities and courts, irrespective of the VAT right affected by the fraud, including therefore the right to a VAT refund. … 49. In the light of the foregoing considerations, it is, in principle, the responsibility of the national authorities and courts to refuse the benefit of the rights laid down by the Sixth Directive when they are claimed fraudulently or abusively, irrespective of whether those rights are rights to a deduction, to an exemption or to a VAT refund in respect of intra-Community supplies, as at issue in the case in the main proceedings. 50. It must further be noted that, according to settled case-law, that is the position not only where tax evasion has been carried out by the taxable person itself but also where a taxable person knew, or should have known, that, by the transaction concerned, it was participating in a transaction involving evasion of VAT carried out by the supplier or by another trader acting upstream or downstream in the supply chain…”
[41]The paragraphs of the Advocate General’s opinion endorsed at [46] make the point (at paragraph 50) that the (extended) requirement of “good faith” (see [33] above) reflects the general principle “that no one may benefit from the rights stemming from the European Union’s legal system for abusive or fraudulent ends” such that there was “no need to distinguish between the right of deduction and the right of exemption, on the one hand, and the other rights, on the other” (a point reiterated at paragraph 52). Paragraph 51 of the opinion also states that “neutrality of tax may not be reasonably relied upon by taxable persons who have wilfully or through negligence participated in fraud”.[42]The CJEU went on to explain that benefits could be refused in the absence of any power under national law. This was because EU law could not be relied on for fraudulent or abusive ends; in such a situation the objective conditions required under the directive will not have been satisfied, and this was not a question of imposing an obligation on an individual under a directive ([56] and [57]), so that:
“58. Consequently, the present case concerns rather the impossibility for the taxable person to claim a right under the Sixth Directive, the objective criteria for the granting of which have not been satisfied either because of fraud affecting the transaction carried out by the taxable person itself or because of the fraudulent nature of a chain of transactions as a whole, in which that taxable person participated, as has been stated in paragraph 50 of the present judgment.”
[43]This consequence was “inherent in the system” ([59]) and, further could not be countered by reliance on principles of protection of legitimate expectations or legal certainty ([60]). The CJEU had also observed earlier, at [48], that principles of fiscal neutrality also did not assist the taxpayer. It also confirmed at [61] that the refusal of the benefit of a right in these circumstances did not amount to a penalty.[44]Italmoda therefore confirms that there is a general principle that VAT rights do not extend to those participating in fraud (in the Kittel sense) or other abuse, irrespective of the position under national law and general principles such as legal certainty and fiscal neutrality.[45]Case C-251/16 Cussens and others v Brosnan [2018] STC 1957 (“Cussens”) concerned a tax avoidance scheme rather than MTIC fraud, which the Irish tax authorities sought to counter using the Halifax abuse principle, and in the absence of national legislation permitting them to do so. Cussens was relied on by Mr Watkinson primarily because of the CJEU’s reference not only to VAT rights but to “advantages”. After referring to the general principle that EU law cannot be relied on for abusive or fraudulent ends and to what was said in Halifax at [70] and [71], the CJEU said this:
“30. …it is apparent from the Court’s case law that the principle that abusive practices are prohibited is applied to the rights and advantages provided for by EU law irrespective of whether those rights and advantages have their basis in the Treaties… It is thus apparent that that principle is not of the same nature as the rights and advantages to which it applies. 31. The principle that abusive practices are prohibited, as applied to the sphere of VAT by the case law stemming from the judgment in Halifax, thus displays the general, comprehensive character which is naturally inherent in general principles of EU law… 32. It should also be added that, according to the Court’s case law, refusal of a right or an advantage on account of abusive or fraudulent acts is simply the consequence of the finding that, in the event of fraud or abuse of rights, the objective conditions required in order to obtain the advantage sought are not, in fact, met, and accordingly such a refusal does not require a specific legal basis…”
[46]Kittel, Italmoda and Cussens were considered by this court in Butt vRevenue and Customs Commissioners [2019] EWCA Civ 554, [2019] STC 1240 (“Butt”). That case related to a challenge to a penalty levied on a director of a company involved in MTIC fraud. HMRC had relied on the application of Kittel, which the relevant domestic legislation did not expressly cater for. Mr Butt argued that a criminal penalty could only be imposed by clear wording in the domestic legislation.[47]Rose LJ, with whom Peter Jackson LJ and Gross LJ agreed, rejected the challenge, saying this:
“39. … Mr Butt’s ground of appeal is inconsistent with the way that the CJEU has described how the national courts should apply the Halifax principle as further clarified by the Court in Kittel, Italmoda and Cussens. Those cases establish that the fact that the taxpayer fraudulently carried out the transactions in respect of which the VAT credit is claimed does not mean that those transactions are not ‘economic activity’ or that he is not a ‘taxable person acting as such’. It is not the meaning of those specific terms in the Sixth Directive that is affected by the Halifax line of cases; the principle is more subtle than that. The abuse of right principle is, according to Cussens, ‘naturally inherent in general principles of EU law’ as a free-standing principle that applies irrespective of the ability of the wording of the national provisions to be subjected to a conforming interpretation.”
[48]Mr Margolin relied on two authorities decided after EU exit that refer to Ablessio, Case C-358/20 Promexor Trade SRL v Direcţia Generală a Finanţelor Publice Cluj – Administraţia Judeţeană a Finanţelor Publice Bihor (“Promexor”) and Case C-164/24 ‘Cityland’ EOOD v Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ – Veliko Tarnovo (“Cityland”). These cases are of course not binding on us, though we may have regard to them.[49]Promexor at [41] merely restates, in very similar terms, what was said in Ablessio at [22], [23], [28] and [30]. Cityland related to Bulgarian legislation that permitted deregistration of a person for failure to comply with their VAT obligations (on the facts, the breaches relied on appear to have been minor). The CJEU reformulated the questions referred as whether the PVD and principles of legal certainty and proportionality precluded legislation permitting removal from the VAT register without the tax authority “analysing the nature of the infringements committed and the conduct of the taxable person at issue” ([26]). In its discussion, and after referring to various paragraphs of Ablessio, the CJEU stated at [36] that:
“…in the exercise of their discretion concerning the adoption of measures which seek to ensure the correct collection of the tax and to prevent fraud, Member States may, where appropriate, provide for the removal of a taxable person from the VAT register.”
[50]However, national legislation of the kind in question was a form of penalty and was not proportionate:
“45. … such a penalty cannot be regarded as consistent with the principle of proportionality, in so far as it is imposed without examining the nature and the degree of seriousness of the infringements committed by the taxable person in order to determine whether such a severe penalty is warranted or whether another, less severe penalty is sufficient in the circumstances that led to the imposition of such a penalty. 46. Legislation which allows the tax authorities to remove a taxable person from the VAT register without providing for an obligation on the part of those authorities to examine fully the conduct of that taxable person in order to assess whether there is a risk to tax revenue and a likelihood of VAT fraud goes beyond what is necessary for ensuring the collection of all the VAT and combating VAT fraud. 47. Without such a full examination of the conduct of the taxable person at issue, it is impossible to ascertain exactly the nature and the extent of any tax fraud committed by that taxable person and, consequently, to assess whether the removal of that taxable person from the VAT register constitutes an appropriate penalty for ensuring the collection of all the VAT and combating VAT fraud.”
Further, such a penalty was not consistent with the principle of legal certainty: [42] and [50]. Accordingly, national legislation of the kind in issue was precluded ([51]).[51]The dispositif in Cityland was in the following terms:
“The first subparagraph of Article 213(1) and Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive (EU) 2017/2455 of 5 December 2017, and the principles of legal certainty and of proportionality must be interpreted as precluding national legislation which, as interpreted by the tax authorities and the national courts, provides for the possibility for the competent tax authority to remove a taxable person from the value added tax (VAT) register on the ground of a failure to comply with VAT obligations on that taxable person’s part, without that tax authority analysing the nature of the infringements committed and the conduct of the taxable person at issue.”

Discussion

[52]I granted permission for ICSL’s appeal since it raises an important point of principle. Kittel is well-established authority that would justify the denial of input tax deductions if it is proved that ICSL knew or should have known that it was participating in transactions connected with VAT evasion. However, the CJEU has not in terms extended that formulation to deregistration (or denial of registration). Given the potential impact on a trader’s ability to carry out legitimate transactions, it was appropriate to give careful consideration to whether the UT’s conclusion that deregistration is possible was correct. However, having done so I am confident that it was.[53]In what follows I will for convenience generally refer only to deregistration. As a matter of law, however (and as is illustrated by Cityland), I can see no relevant distinction between deregistration and a refusal to register. In particular, both are prospective in nature. We are not concerned with actions that have a purported retrospective effect.[54]It is also important to emphasise that this is an appeal against a decision on preliminary issues of law. There were no assumed facts on the basis of which the case was argued, and in particular no argument about whether the particular facts of ICSL’s case would or would not justify deregistration, or whether instead that action was disproportionate. Those points remain to be decided at trial.[55]One effect of this was that ICSL was required to put its case in stark terms. As Mr Margolin accepted in response to a question put by Popplewell LJ, if ICSL’s primary case was correct then, even if a taxable person was party to what in English law terms would be a conspiracy to defraud the revenue and had no legitimate business activity, the tools at HMRC’s disposal would not include deregistration if the actual VAT default was by another party to the conspiracy. Similarly on ICSL’s alternative case, an intention to make any untainted supply in the future, however small, would be sufficient to preclude deregistration.[56]These points illustrate the difficulty of ICSL’s case. VAT fraud has proved to be a very significant problem. If the tools available to HMRC were limited in the way that ICSL maintains that they are, then they would be likely to be of limited effect in preventing future abuse. Importantly, there would be nothing to prevent the relevant person’s participation in further fraudulent schemes, with HMRC attempting to play “catch up”, trying to close the proverbial stable door after the horse has bolted. In contrast, deregistration is prospective in effect and, as is obvious, will prevent a trader from using its VAT number in fraudulent transaction chains in the future.[57]Taking the case against ICSL as an illustration, as Mr Watkinson pointed out no one is suggesting that it would actually have £47m available to pay if its input tax deduction was correctly denied. Other possible steps suggested by ICSL may also have limited effect. For example, requiring security for VAT is of no assistance for a trader that balances VAT on supplies made against input tax on supplies received. Further, if the availability of deregistration turned on the potential for any untainted supply, that could readily be engineered.[58]Rather, and as HMRC maintain, the correct approach is that whether deregistration of ICSL was lawful depends on: a) whether it knew or should have known that it was taking part in transactions connected with the fraudulent evasion of VAT, and b) whether deregistration was a proportionate step on the facts.[59]In my view, these conclusions can clearly be derived from the EU case law discussed above. As explained there, Halifax establishes that the VAT system cannot be relied on for “abusive or fraudulent ends”, and that the prevention of tax evasion, avoidance and abuse is “recognised and encouraged” by the VAT directive ([27] above). Although Halifax is better known for the principle set out at [74] and [75] of the decision in the context of tax avoidance rather than evasion, it is not so limited. Rather, and unsurprisingly, the Halifax “abuse principle” extends beyond tax avoidance to abuses involving fraud and evasion.[60]Kittel reflected a deliberate decision to classify those who “knew or should have known” that they were involved in transactions connected with VAT fraud as themselves being participants, on the basis that they were accomplices. This was spelled out further in Italmoda, where the CJEU said in terms that such conduct “is considered to constitute fraudulent conduct on the part of a taxable person” (see [30]-[33] above). Further, Italmoda and Cussens make clear that the “knew or should have known” formulation is not restricted to the deduction of input tax. It applies to other VAT “rights and advantages” (Cussens at [30]). Although VAT registration carries important responsibilities, it is obvious from the existence of the dispute over ICSL’s deregistration that it can also be described as an advantage. As the UT said at [112] of its decision, as well as enabling the recovery of input tax it is important in proving status for VAT purposes to counterparties, who may otherwise be less willing to transact.[61]Italmoda and Cussens also make clear that the general principle of VAT law that VAT rights and advantages do not extend to those participating in fraud or abuse is “inherent” in general principles of EU law. It applies irrespective of the position under national law and other general principles such as legal certainty and fiscal neutrality (see above at [40]-[47]).[62]Ablessio was decided without the benefit of an Advocate General’s opinion. Under the CJEU’s procedure, this must mean that the court considered that the case raised no new point of law (see Article 20 of the Statute of the Court of Justice of the European Union). There was also no Advocate General’s opinionin Promexor or Cityland. Further, none of those cases concerned involvement in fraud or fraudulent transaction chains. Rather, in both Ablessio and Cityland references to fraud are included, relatively briefly, by way of qualification to the answers to the questions posed and in the context of the broader abuse principle established in Halifax and applied in subsequent cases. Properly understood and in the context of that case law, I consider that those references are intended to make it clear that the decisions in those cases do not prevent tax authorities taking steps to counter VAT fraud, including in relation to VAT registration. However, and as HMRC accept, those steps must be proportionate.[63]In Ablessio (see [34]-[38] above), the application of the Halifax abuse principle is evident from the CJEU’s decision at [28]. I do not read the references to “misuse” of VAT numbers and to the VAT number assigned to a person being used fraudulently at [30], [34] and [38] as confined to cases where the taxable person is evading their own VAT. Use of a VAT registration to play a part in a chain of transactions which enables VAT to be evaded at some point in the chain is, to my mind, quite capable of being regarded as “misuse”, or fraudulent use, in circumstances where the taxable person knew or should have known about the fraud, because that “is considered to constitute fraudulent conduct” (Italmoda at [64], see [32] above). The reference to both misuse of a VAT number and “other VAT fraud” in Ablessio at [38] also indicates that the CJEU was not intending to be prescriptive in describing the particular type of fraud that was required. (The reference at [30] to fictitious activity “in particular” was rightly not relied on by Mr Margolin as limiting what was said only to activity of that nature.)[64]It is true that the reference in Ablessio at [36] to “the taxable person’s fraudulent intentions” is arguably more consistent with ICSL’s case. The same can be said of the reference to “tax fraud committed by that taxable person” in Cityland at [47]. However, I do not consider that, by those brief references, the CJEU was intending to limit the scope of the principle in that way. As I have said, it is apparent that the court did not consider that it was establishing any new point of law in either case. If (notwithstanding the lack of an Advocate General’s opinion) it considered that it was, it is likely that the point would have been made much more clearly, and that the references elsewhere to misuse of VAT numbers and VAT fraud would also have been expressed more narrowly. Moreover, the CJEU had already made clear in Kittel that those who knew or should have known they were participating in VAT fraud are themselves participants in it; that is, and as spelt out in Italmoda, they are to be treated as committing tax fraud themselves.[65]Further, even read as ICSL submits, the references in these paragraphs are far from definitive. Ablessio refers at [36] only to a “suspicion” of fraudulent intentions as a factor to take into account, and as already indicated other references to “misuse” are broader. In Cityland, the preceding paragraph, [46], refers more broadly to a “risk to tax revenue and a likelihood of VAT fraud”, and at [47] the immediate context is the stated need to examine the taxable person’s conduct to ascertain the “nature and extent” of “any” tax fraud committed by them, so as to assess whether deregistration is an “appropriate penalty for ensuring the collection of all the VAT and combating VAT fraud”. It does not state in terms that they must have fraudulently evaded VAT.[66]Moreover, the actual rulings on the questions referred in Ablessio and Cityland do not advance ICSL’s case (see [38] and [51] above). In Ablessio, the dispositif refers to the need for the tax authority to establish, based on objective factors, that there is “sound evidence leading to the suspicion that the value added tax identification number assigned will be used fraudulently”. As I have said, this is not a misdescription of participation in a VAT fraud where the taxable person knew or should have known that fact, even though they are not the defaulter. The dispositif in Cityland refers to a requirement for the tax authority to analyse “the nature of the infringements committed and the conduct of the taxable person at issue”, which is considerably broader than ICSL’s case would suggest.[67]What Ablessio and Cityland do emphasise is the requirement to comply with the principle of proportionality. Deregistration cannot be based on mere suspicion. Rather, there must be “sound evidence giving objective grounds for considering that it is probable that the VAT identification number assigned to that taxable person will be used fraudulently”, and the decision must be based on an “overall assessment” (Ablessio at [34]). The “nature and the degree of seriousness of the infringements committed” must be examined (Cityland at [45]).[68]Although it is not necessary for our decision, I should clarify one point about the approach to proportionality. There has been a debate between the parties about the correct legal test to determine whether a measure was proportionate. HMRC maintain that the applicable test is whether the relevant measure is “manifestly disproportionate”, relying on R (on the application of Seabrook Warehousing Ltd) v Revenue and Customs Commissioners [2019] EWCA Civ 1357 at [84]-[85] and [92], whereas ICSL rely instead on the stricter review standard in R (Lumsdon and others) v Legal Services Board [2015] UKSC 41, [2016] AC 697 (“Lumsdon”) at [33], in outline whether the measure is appropriate to achieve the objective pursued and whether it is necessary to achieve that objective. The UT found it unnecessary to decide the debate because it concluded against ICSL using its preferred formulation. However, as we canvassed at the hearing, the debate is simply not to the point.[69]The question is not whether a particular national law or (for example) a scheme established by a public body of the kind considered in Lumsdon is or is not proportionate, and still less about the approach that courts in this jurisdiction should take to assessing the margin of appreciation available to national authorities on a challenge by way of judicial review. Rather, the question is whether EU law establishes that it is never proportionate to deregister a person involved in facilitating VAT fraud by another. If (as I consider it to be case) the answer to that is “no”, such that deregistration may be possible, then it is uncontroversial that whether deregistration is proportionate will depend on an overall assessment of the facts: see above and Ablessio at [34]-[38]. In the event of an appeal then that overall assessment will be conducted afresh by the FTT based on its findings of fact.[70]ICSL’s alternative case on ground 1 of its appeal is that a facilitator of fraudulent VAT default by another may not be deregisteredif they make or intend to make any “untainted” supplies. Ground 2 raises specific points that are said to preclude deregistration of such a person, namely that it would systematically undermine the right to deduct or breach the EU principles of proportionality, fiscal neutrality and legal certainty. The answer to these points largely follows from what I have already said.[71]It is important to note that, even on ICSL’s reading of Ablessio, it is necessarily implicit that refusal of registration (or deregistration) may be available to a tax authority as a response to evidence of VAT evasion by the taxable person themself, provided it is a proportionate response on the facts. Such action would obviously have an impact on any legitimate business that the taxable person intended to undertake. Indeed, it is worth pointing out that the only valid complaint about denial of registration preventing input tax deductions must relate to inputs attributable to legitimate business, since input tax deductions connected with fraud are denied in any event under Kittel. There is no indication in Ablessio or the later cases that consider it that the CJEU considered that the potential for legitimate business to be undertaken would necessarily mean that such action was not available.[72]Given that point, and the CJEU’s alignment of fraudulent VAT defaulters with others who participate in transaction chains where they knew or should have known they were connected with fraud (“facilitators”), as to which see above, I cannot see a logical basis to distinguish between those who evade or may evade VAT themselves and facilitators as a matter of principle. Of course, the proximity and extent of a facilitator’s involvement in VAT fraud are likely to be relevant factors in determining whether the tax authority’s action is proportionate on the facts, alongside other factors including the extent of the anticipated untainted supplies, but that is very different to ruling out action in relation to VAT registration altogether.[73]As to legal certainty, the effect of the CJEU’s jurisprudence is that it effectively gives way to the inherent nature of the Halifax abuse principle. This was summarised in Italmoda as follows at [60]: “… a taxable person who has created the conditions for obtaining a right only by participating in fraudulent transactions is clearly not justified in invoking the principles of protection of legitimate expectations or legal certainty in order to oppose the refusal to grant the right in question …” (See also Cussens at [40] and [43].)[74]Mr Margolin submitted that issues of legal certainty would be particularly acute where intended supplies will exceed the compulsory VAT registration threshold, since it would be unclear what the trader should do. I do not agree that this point makes any difference.[75]First, Mr Watkinson fairly responded that a supplier who does intend to make supplies above the registration threshold would be required to inform HMRC of that fact (see paragraph 5 of Schedule 1 to VATA). HMRC would then decide what, if any, further action was required.[76]Secondly, the argument on this point displays a confusion between outputs and inputs. The Kittel principle does not mean that supplies made by the taxable person (that is, outputs) do not attract VAT, even if they are “tainted” by fraud (see, to that effect, an observation made by Rose LJ in Butt at [23]). What it does do is deny deductions for VAT incurred on supplies made to the taxable person (inputs) to the extent they relate to their participation in the fraudulent scheme.[77]However, compulsory VAT registration depends on the level of outputs, not inputs (see paragraph 1(1) of Schedule 1 to VATA). Thus, the distinction drawn by Mr Margolin between untainted and other (output) supplies does not assist him in relation to legal certainty.[78]Turning to fiscal neutrality and ICSL’s objection that deregistration would systematically undermine the right to deduct, the short answer is that, like legal certainty, these principles must give way to the inherent nature of the Halifax abuse principle, as applied in the Kittel line of cases. The CJEU said this in Italmoda at [48] in relation to input tax and VAT refunds:
“… the central function of the right of deduction provided for in Article 17(3) of the Sixth Directive, in the VAT mechanism designed to ensure complete neutrality of the tax, does not preclude that right from being refused to a taxable person in the event of participation in fraud... Similarly, the specific function of the right to a VAT refund, intended to ensure the neutrality of VAT, cannot preclude that right from being refused to a taxable person in such a situation.”
[79]More generally, and as noted at [41] above, the CJEU had also referred at [46] of its decision in Italmoda to paragraph 51 of the Advocate General’s opinion in that case, which stated that:
“neutrality of tax may not be reasonably relied upon by taxable persons who have wilfully or through negligence participated in fraud.”
[80]As Mr Watkinson pointed out, there are in fact two elements to fiscal neutrality. First, there is the operation of the input tax deduction system, designed to ensure that the fiscal burden falls on the final consumer rather than on intermediate traders in a supply chain (see for example Case C-111/14 GST-Sarviz AG Germania v Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ Plovdiv pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite EU:C:2015:267, [2015] STC 1883 at [32]). It is this aspect on which ICSL relies, and which gives rise to its objection that deregistration would systematically undermine the right to deduct. Secondly, the principle of fiscal neutrality requires equal treatment of supplies that are in competition with each other (see recital 7 to the PVD and, for example, Joined Cases C259/10 and C260/10 Rank Group Plc vRevenue and Customs Commissioners EU:C:2011:719, [2012] STC 23 at [32]).[81]A taxable person who participates in VAT fraud and knew or should have known that fact will have their input tax deductions denied insofar as they relate to the fraud. That necessarily follows from the decision in Kittel, which indeed expressly addressed fiscal neutrality in response to the questions referred (see at [25], [48] and [50]). ICSL’s submission is that it would contravene the principle of fiscal neutrality and systematically undermine the right to deduct to go beyond that by denying the benefit of registration, because the consequence of doing so would be to preclude recovery of all input tax, including input tax not related to the fraud.[82]I do not agree. In Ablessio the CJEU expressly referred at [30] to the need for measures not to “systematically undermine the right to deduct VAT, and hence the neutrality of that tax”. But despite that there is no indication in Ablessio that the potential for untainted supplies would necessarily prevent a refusal of registration in an appropriate case. Moreover, while a person denied registration would not be able to obtain relief for input tax, they would also not be required to account for output tax. To that extent they might be placed in a better position than competitors.

Conclusion

[83]In conclusion, I would dismiss the appeal. The UT was correct to conclude that HMRC have power to deregister a taxable person who takes part in transactions connected with the fraudulent evasion of VAT and knew or should have known that fact, even if they also make or intend to make supplies unconnected with fraud, provided that is a proportionate step in the circumstances. Deregistration in those circumstances would not of itself breach the EU principles of proportionality, fiscal neutrality or legal certainty.[84]I agree.[85]I also agree.

Cited in 5 later judgments