VAT Due Diligence Covered The Suppliers, Not The Consultant

VAT fraud checks look outwards. Eurolaser IT Limited's sole director did that, requiring due diligence on counterparties, including Companies House records for UK suppliers. HMRC accepted on review that he neither knew nor should have known the 2018 transactions were connected with fraudulent VAT evasion. The company lost anyway.

The Upper Tribunal dismissed the appeal on 21 August 2026, [2026] UKUT 00324 (TCC). A self-employed consultant's knowledge counted, attributed to the company by the First-tier Tribunal and not appealed. Input tax of £1,628,525.16 was denied, output tax of £503,409.29 assessed, penalties totalling £312,406.16.

Having already decided the point, the First-tier Tribunal added for completeness that the director took up no references and ran no Companies House search, both comparatively simple steps. That search, it said, would quickly have facilitated a chain of enquiry that would have made him aware of the consultant's previous involvement in MTIC fraud. The legal tests were not challenged on appeal. These transactions pre-dated Brexit, under the Principal VAT Directive, but section 42 of the Taxation (Cross-border Trade) Act 2018 keeps the Kittel abuse principle live in UK VAT law today. The cost lands on the company and its owner-manager, not on the consultant.

1. A company's VAT position can turn on what a self-employed agent knew, even where HMRC has accepted the director neither knew nor should have known. Is that attribution right in principle, or does it reach too far?
2. Small firms often bring in consultants and agents because they cannot afford that expertise in house. Who is hit hardest when the agent's knowledge becomes the company's, and is that fair?
3. References and a Companies House search were among the steps the First-tier Tribunal said were missed. Is that a realistic standard for a small business, and what else should an owner do before letting someone arrange deals in the company's name? Do you have a client whose plans this would change? If so, please give as much colour and detail as possible.