Upper Tribunal upholds HMRC's Kittel finding against Opus Labour Services director

The Upper Tribunal (Tax and Chancery Chamber) has dismissed an appeal against a finding that a construction industry recruitment company and its director should have known that transactions with a series of payroll providers were connected to the fraudulent evasion of VAT, in a judgement handed down on 20 July 2026.

The case, Opus Labour Services Limited & Anor v The Commissioners for HMRC [2026] UKUT 275 (TCC), concerned the denial of input tax credits to Opus Labour Services Limited, which supplied asbestos removal workers to sites across the country and outsourced its payroll function to a succession of companies later identified by HMRC as defaulting traders or buffers in fraudulent VAT chains. HMRC also issued Personal Liability Notices against Jason Giller, the company's sole director, in respect of related penalties.

Before the First-tier Tribunal, it was conceded that a tax loss existed, that it resulted from fraudulent evasion, and that the relevant transactions were connected to that evasion. The sole issue was whether Opus and Mr Giller knew or should have known of the connection, the test established by the Court of Justice of the European Union in Kittel v Belgium. The FTT found that Mr Giller lacked actual knowledge and, with some reservations, lacked blind-eye knowledge, but concluded that he had constructive knowledge, citing his prior exposure to supply chain integrity issues during earlier employment at another labour provider, his seriously negligent failure to carry out due diligence, and a pattern of dealings with five consecutive defaulting traders over the course of a year.

On appeal, Tim Brown, representing the appellants, argued that the FTT had applied the wrong legal test by failing to ask whether a reasonable businessman would have concluded that the only reasonable explanation for the transactions was a connection to VAT fraud, and that it had in any event given inadequate reasons for its conclusion. A third ground challenged specific factual findings as perverse or unsupported by evidence, including the finding that Mr Giller had become aware of VAT fraud risks during his earlier employment.

The Upper Tribunal, comprising Judge Thomas Scott and Judge Andrew Scott, first refused an application to admit fresh witness evidence from a former colleague of Mr Giller, holding that the evidence could have been obtained with reasonable diligence before the original hearing and that its late introduction would be procedurally unfair, applying the established Ladd v Marshall criteria.

On the substantive grounds, the tribunal held that the "only reasonable explanation" formulation derived from Mobilx Ltd v HMRC is merely one route by which HMRC may discharge its burden of proving constructive knowledge, not a mandatory test the FTT must apply in every case, particularly where the taxpayer has not sought to advance an alternative innocent explanation for the surrounding circumstances. The tribunal found that the FTT had correctly directed itself on the law and had, read as a whole, applied the objective standard of the reasonable businessman rather than assessing Mr Giller's subjective state of mind alone.

On the factual challenges, the tribunal held that the FTT had properly weighed all relevant evidence, including Mr Giller's checks of suppliers' Gross Payment Status, and was entitled to find those checks inadequate and to treat the repeated pattern of dealings with defaulting traders as objectively significant regardless of when Mr Giller subjectively became aware of individual failures. The tribunal noted it would not itself have granted permission to appeal on the factual grounds, describing aspects of the challenge as an impermissible "roving selection of evidence."

The appeal was dismissed in full.