Tribunal grants taxpayer's application for disclosure against HMRC in Kittel appeal

In CIS-Pay Ltd v HMRC [2025] UKFTT 00751 (TC), the First-tier Tribunal (FTT) granted the appellant's application for disclosure of all material within HMRC's possession that might assist the appellant's case or undermine HMRC's case.

Background

CIS-Pay Ltd's (the Appellant) disclosure application related to HMRC's decision to deny input tax totalling £8,192,686, in relation to supplies connected with a mini-umbrella company arrangement (the VAT Issue) and a related penalty of £2,457,805, issued under section 69C, Value Added Tax Act 1994 (VATA) (the Penalty Issue). 

HMRC relied on Axel Kittel v Belgian State and Belgian State v Recolta Recyling SPRL (C-439/04 and C440/04), in which the court confirmed that where a taxable person knew, or should have known, that it was participating in a transaction connected with fraudulent evasion of VAT, that taxable person's right to deduct input tax should be refused. 

The Appellant applied to the FTT, seeking disclosure of all material within HMRC's possession that might assist the Appellant's case or undermine HMRC's case, rather than the ordinary disclosure applicable in FTT proceedings (i.e. a party is normally only required to disclose documents that it intends to rely upon in accordance with Rule 27 of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009).  

FTT decision 

The application was granted.  

In determining the application, the FTT noted that it was common ground between the parties that the Penalty Issue related to a criminal charge, within the meaning of Article 6 of the European Convention on Human Rights (Article 6). Article 6 provides for the right to a fair trial, of which disclosure of evidence is an integral part. 

The FTT confirmed that Article 6 rights are fundamental rights to be enjoyed by all those who are the subject of a criminal charge and that such rights cannot be removed or diminished simply because another matter, in this case the VAT Issue, does not have Article 6 protection and is being heard concurrently. The FTT also rejected HMRC's suggestion that where there is overlap between criminal charges and other matters, Article 6 does not apply to the areas of overlap. 

With regard to the fairness between the parties, the FTT considered whether the disclosure would give the Appellant an advantage in relation to the VAT Issue. The FTT agreed with the Appellant that if there was such a collateral benefit, then so be it.  

The FTT also considered whether granting the application would cause prejudice to HMRC in other ways such as the time and expense that might be involved with the additional level of disclosure as well as whether the ordinary FTT procedure and disclosure under Rule 27 was sufficient. Overall, the FTT concluded that it would be in the interests of justice to grant the application.   

Comment 

This decision highlights the importance that the FTT attaches to protecting procedural fairness in hearings involving penalties that are considered criminal charges due to their severity and punitive nature.

The FTT recognised that although the underlying tax appeal (the VAT Issue) fell outside Article 6 protections, the Penalty Issue constituted a criminal charge engaging Article 6 rights, including disclosure obligations. It rejected HMRC's argument that Article 6 rights are limited only to penalty specific conditions and do not extend to overlapping issues with the substantive appeal.   

The decision can be viewed here.