My client is a restaurant which had a major refurbishment of their premises. They employed a builder to carry out the work. The job was completed and invoiced with VAT. The restaurant then claimed the input tax on its next available VAT return and submitted to HMRC. Given the size of the repayment due to the building work HMRC checked the return submitted. Enquiries highlighted that the builder who carried out the work was now a missing trader and they disallowed the VAT claimed on the invoice. They did this on the basis the restaurant knew, or should have known, the transaction they entered into was involved with the fraudulent evasion of VAT – the Kittel Principle. Are they allowed to do this?
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