Opus Labour Services Limited & Anor v The Commissioners for HMRC

The Respondents (“HMRC”) denied Opus Labour Services Limited (“Opus”) various input tax credits for VAT purposes and imposed related penalties on the company. HMRC also imposed two Personal Liability Notices (“PLNs”) on Mr Jason Giller, the sole director of Opus. The denial of input tax was on the grounds that the relevant transactions were connected with the fraudulent avoidance of VAT and that Opus knew or should have known that this was the case.

The Appellants appealed against certain of the decisions to the First-tier Tribunal (Tax Chamber) (the “FTT”). In its decision issued on 30 June 2025 (the “Decision”), the FTT dismissed the appeals.

This is the decision on the appeal by the Appellants against the Decision.

The following summary is largely taken from the Decision.

Opus was incorporated on 24 October 2016 and was registered for VAT from 1 November 2016 until it was deregistered by HMRC on 11 December 2019. Its business as detailed at Companies House was “temporary employment agency activities”. Opus entered into administration on 9 January 2020. For the periods relevant to this appeal, Mr Giller was the sole director and majority shareholder.

Opus operated as a recruitment company, providing staff to customers within the construction industry. It purchased supplies of payroll services from a number of companies (the “Payroll Companies”). Opus engaged the Payroll Companies to provide all of its payroll services and outsourced its payroll function to those companies.

Opus supplied workers to carry out asbestos removal at building sites throughout the country. These workers carried out their roles in return for payments which the workers received from the Payroll Companies (or their suppliers) net of any sums owing to HMRC.

HMRC alleged that the Payroll Companies were defaulting suppliers who fraudulently defaulted on their obligations to make payments of VAT and/or were “buffers” in chains which led directly to the loss of VAT. HMRC claimed substantial amounts of input tax for VAT purposes for the periods under appeal.

HMRC denied Opus the right to deduct input tax and imposed related penalties on the company. HMRC also imposed Personal Liability Notices on Mr Giller in respect of certain of the penalties.

References below in the form [x] are, unless the context requires otherwise, to paragraphs of the Decision.

The FTT correctly identified the issues arising, at [31] (Footnote: ¹):

Before the FTT, issues (i) to (iii) were conceded, so the only issue to be determined was whether the Appellants knew or should have known that the transactions were connected to fraudulent evasion of VAT: [34].

The FTT began by setting out the relevant domestic and EU law. It recorded that the burden of proof rested with HMRC, the standard being the balance of probabilities: [47].

Having set out in summary the case of each party, the FTT then considered in detail the issue of “VAT awareness”: [55]-[86]. One particular area of dispute between the parties was the extent of Mr Giller’s knowledge of VAT and VAT fraud in the supply chain prior to his starting work at Opus, in particular that arising during his prior employment as a managing director at another company, which acted as a labour provider, Ebrit Labour Services Ltd (initially Ebrit Services Limited) (“Ebrit”). The FTT concluded that it was “more likely than not that Mr Giller would have known of the issues relating to the integrity of the supply chain” in his prior employment at Ebrit and, certainly, before he started at Opus: [71].

At [87]-[202], the FTT carried out a detailed analysis of the dealings by Opus with the five defaulting companies in the VAT chains.

In relation to Mr Giller’s actual or constructive knowledge (as relevant to the Kittel test), the FTT concluded that Mr Giller did not have actual knowledge of the connection to fraud: [204]-[207]. In relation to whether Mr Giller had “blind-eye knowledge”, namely that he had deliberately decided not to obtain confirmation of facts which he suspected, the FTT concluded “with some reservations” that, on a balance of probabilities, he did not have such knowledge: [208]-[209].

However, the FTT concluded that Mr Giller did have constructive knowledge for Kittel purposes, in a passage we consider in detail below, and dismissed the appeals: [210]-[218].

The FTT granted permission to appeal on the following grounds:

On 2 June 2026, Mr Giller applied to the Upper Tribunal for permission to admit and rely on the evidence of an additional witness. HMRC opposed the application, giving detailed reasons for their opposition.

On 15 June 2026, we informed the parties that we had decided to refuse the application, and that we would give our reasons at the start of the hearing, with more detailed reasons to be set out in this decision. Those reasons now follow.

The new evidence was presented as relevant to Ground 3(a), being the challenge to the FTT’s finding of fact that Mr Giller had become aware of VAT fraud in the industry during his employment at Ebrit. The evidence comprised a short witness statement from Mr Darren Wood. Although the application and the witness statement contained no information as to Mr Wood’s position, it is apparent from the Decision that he was a registered director of Ebrit ([57]) and that Mr Giller was next in the chain of command at Ebrit after Mr Wood and another individual, Mr Saman ([66]). Neither Mr Wood nor Mr Saman gave evidence before the FTT.

An apposite starting point in relation to the relevant criteria for the admission of new evidence remains the decision of the Court of Appeal in Ladd v Marshall [1954] 1 WLR 1489. In relation to the relevance of those criteria in this tribunal, we agree with and adopt the position as summarised in Ketley v HMRC [2021] UKUT 218 (TCC), at [52]-[54]:

In his application, Mr Brown referred to the Ladd v Marshall criteria, and stated as follows:

We decided to refuse the application primarily for two reasons. First, nothing was produced to show (indeed, it was not even asserted) that the evidence could not, with reasonable diligence, have been obtained for use before the FTT. Indeed, the Appellants, who were represented before the FTT, were on clear notice from HMRC’s case before the FTT that the issue of Mr Giller’s prior knowledge at Ebrit was a contentious issue which was argued and relied on by HMRC. A decision by the Appellants not to call any evidence from Mr Wood (or Mr Saman) in those circumstances was a voluntary tactical choice taken by the Appellants as part of the litigation before the FTT. That is confirmed by Mr Brown’s explanation above as to the view taken by the Appellants of the strength of their evidence. So, the new evidence clearly fails to satisfy the first Ladd v Marshall criterion. Second, the putative evidence relates to an Edwards vBairstow challenge to a finding of fact by the FTT, and it would not be procedurally fair, or in accordance with the overriding objective, for the Appellants now to have a second bite at the cherry by the introduction of evidence in this appeal which would (as HMRC confirmed in their response to the application) have caused HMRC to conduct the FTT hearing differently.

We also have reservations as to whether or not the new evidence would in any event have satisfied the second and third Ladd v Marshall criteria, but we have not needed to decide those issues in view of the two reasons we identify which, in our opinion, militated decisively against the admission of the new evidence.

Mr Brown rightly acknowledged that Grounds 1 and 2 effectively fall to be resolved together, since the adequacy of reasons argument turns on the test which the FTT applied.

Ground 1 asserts that the FTT “applied the wrong test when it concluded that the Appellant ought to have known that the only reasonable explanation for the transactions was that they were connected to VAT fraud”.

This requires some unpacking. The error of law which is alleged is that (1) the correct test for establishing constructive knowledge is that it must be shown by HMRC that a reasonable businessman would have known that the only reasonable explanation for the transactions was that they were connected to VAT fraud, and (2) taking into account the reasons given by the FTT for its decision, the FTT did not properly apply this test.

This description is consistent with Ground 2, which is described in Mr Brown’s skeleton argument (Footnote: ²) as a contention that “even if the FTT did apply the correct objective test (see Ground 1 above), it did not record the critical elements of its decision making as to why objectively a reasonable businessman, from the perspective of the Appellant, in all of the circumstances should have concluded the only reasonable explanation was the connection with VAT fraud and therefore it failed to reach the minimum level [for adequacy of reasons] required”.

Before we consider the FTT’s reasoning, we begin by setting out our views on the issue of law as to the correct test to be applied.

HMRC denied Opus the right to recover input tax on the basis of the principle established in the CJEU (Footnote: ³) decisions in Kittel v Belgium, Belgium v Recolta Recycling SPRL (Joined cases C-439/04 and C-440/04) [2008] STC 1537 (“Kittel”). Kittel establishes that the right to deduct input tax will be lost where a taxable person “knew or should have known” that their transaction was connected with the fraudulent evasion of VAT. There the CJEU stated (emphasis added to original):

In Mobilx Ltd (in administration) v HMRC [2010] EWCA Civ 517 (“Mobilx”), Moses LJ said this, at [59]-[60]:

This passage from Mobilx generated some confusion. In particular, it raised the question of whether Moses LJ was defining (or redefining) the Kittel constructive knowledge test as an “only reasonable explanation” test, or whether he was simply indicating that an “only reasonable explanation” approach was one way in which HMRC could discharge the burden on them to establish Kittel constructive knowledge.

That question has been clarified in various decisions of the Upper Tribunal subsequent to Mobilx.

In GSM Export (UK) Limited and another v HMRC [2014] UKUT 0529 (TCC) (“GSMExport”), Mrs Justice Proudman stated as follows:

In AC Wholesale Ltd v HMRC [2017] UKUT 0191 (TCC) (“AC Wholesale”), the Upper Tribunal addressed the application of the “only reasonable explanation” test and concluded as follows:

We derive the following principles from the relevant case law:

We turn now to approach and reasoning of the FTT, which is the subject of Grounds 1 and 2.

The FTT referred to various relevant authorities, including Kittel, Mobilx and GSMExport. Having considered and made findings on the issue of Mr Giller’s knowledge of VAT and associated risks in the supply chain, the FTT looked in detail at the dealings between Opus and the five defaulting traders. After concluding that Mr Giller did not have actual or “blind-eye” knowledge, the FTT’s conclusions on constructive knowledge were as follows:

Mr Brown argued that the FTT’s reasons simply set out what Mr Giller did or did not do, but did not consider or explain, as they needed to, “why the reasonable businessman should have concluded that the only reasonable explanation for the transactions was that they were connected to VAT fraud”. He said that paragraphs [216] and [217] also failed to apply the correct test, because they considered irrelevant factors and wrongly addressed the risk of fraud generally rather than VAT fraud.

We will consider Grounds 1 and 2 on the assumption that the challenges to findings of fact which comprise Ground 3 are unsuccessful. If we were to uphold Ground 3 in whole or part we will need to revisit our conclusion on Grounds 1 and 2.

We firmly reject Mr Brown’s arguments, for the following reasons.

First, as we have set out above, the FTT was not obliged to determine constructive knowledge for Kittel purposes by applying an “only reasonable explanation” test. The FTT correctly directed itself on the law, and was under no obligation to explain either its overall conclusion or its reasoning on the various factors which it identified as supporting that conclusion by reference to that formulation.

As we have said, if a taxpayer argues their case by relying on another reasonable explanation for a factor said by HMRC to demonstrate constructive knowledge, then that should be considered by the FTT. However, in this appeal, that was not a central aspect of the Appellants’ response to the facts relied on by HMRC. Their defence was (in a nutshell) that they only became aware of potential VAT fraud in July 2019 and that they carried out meaningful due diligence, in particular by verifying that suppliers were registered with HMRC for Gross Payment Status: see [48]-[49]. It was hardly surprising against that backdrop that a considerable part of the FTT’s deliberations were spent in considering those two assertions.

Second, as to the complaint that the FTT failed to consider the position of the reasonable businessman, and erred by considering solely the subjective position of Mr Giller, we consider it clear from the decision read fairly and as a whole that the FTT was adopting the correct position and considering the various causes for concern and “red flags” by reference to the objective position of a reasonable businessman.

This is reinforced by the fact that the FTT plainly had the correct approach in mind. In directing itself on the law, the FTT stated as follows at [46]:

As Popplewell LJ explained in DPP Law Ltd v Greenberg [2021] EWCA Civ 672, at [58]:

We consider it clear that in the Decision the FTT did not “slip up in the application” of the relevant principles.

Third, Mr Brown’s argument “island hops” onto paragraphs [211]-[217] and treats that passage (paraphrased by Mr Brown as “Mr Giller didn’t do enough checks and knew about VAT fraud”) as encompassing the FTT’s reasons for finding that Mr Giller had Kittel constructive knowledge. The Decision must, of course, be read as a whole. That is not simply a point of principle in this case, because the FTT set out meticulous and detailed findings as to the shortcomings and “red flags” in the dealings by Opus with the five defaulting traders. Those findings, at [87]-[202], comprise roughly half of the Decision, and must be read together with the remainder of the Decision in order to determine the reasons relied on by the FTT.

Fourth, in so far as Mr Giller might have been seeking to rely on another reasonable explanation for any of the facts relied on by HMRC in relation to knowledge, a significant problem is that the FTT did not find his evidence wholly reliable. In relation to his prior knowledge of VAT/supply chain issues, the FTT “[did] not accept that claimed lack of knowledge of Mr Giller to be either plausible or credible”: [65]. In relation to the analysis of Opus’ dealings with the defaulting traders, in several respects the FTT did not accept Mr Giller’s evidence: for example, at [100] it found his evidence as to how Opus became engaged with one of the suppliers “to be improvisatory, lacking in substance and not credible”. At [212], set out above, in relation to Mr Giller’s lengthy cross-examination, the FTT said that “at times we found his evidence to be noticeably improvisatory, inventive and lacking in substance”.

Finally, we reject the suggestion by Mr Brown that the FTT fell into error by considering the risk of connection to fraud generally, rather than to fraudulent evasion of VAT. It is not unusual in decisions relating to Kittel for a court or tribunal to refer shorthand to fraudulent evasion of VAT as “fraud”. In identifying the issues before the FTT at [31], the FTT referred to fraudulent evasion of VAT. In summarising the relevant passages from Kittel and Mobilx (at [38]-[41]) the FTT again used this terminology. In its conclusion, at [218], the FTT refers specifically to connection to the fraudulent evasion of VAT.

As we have described, the FTT also made detailed findings, on which it relied in its conclusion, as to Mr Giller’s prior knowledge of VAT fraud and supply chain issues, in a passage titled “VAT awareness”. That clearly indicates that the FTT correctly understood the issue before it.

Our conclusion and reasoning is sufficient to dismiss Ground 2, which is that the FTT did not provide adequate reasons for its decision on constructive knowledge. As Mr Brown accepted, that argument is inextricably linked with Ground 1, which we have firmly rejected. The requirement to provide adequate reasons means that the loser must be able to understand why they have lost. In light of the reasons we have given for rejecting Ground 1, the FTT was under no obligation to frame its reasons by reference to an “only reasonable explanation” formulation, and there can in our opinion be no doubt from the Decision why the appeal failed.

The appeal under Grounds 1 and 2 is dismissed.

The grounds of appeal state as follows:

The principles applicable to an Edwards v Bairstow challenge, to either a distinct finding of fact or an overall evaluative conclusion, are well-established. An appeal to this tribunal lies only on a point of law: section 11(1) of the Tribunals, Courts and Enforcement Act 2007. While there cannot be an appeal on a pure question of fact which is decided by the FTT, the FTT may arrive at a finding of fact in a way which discloses an error of law. In Edwards v Bairstow, Viscount Simonds referred to making a finding without any evidence or upon a view of the facts which could not be reasonably entertained, and Lord Radcliffe described as errors of law cases where there was no evidence to support a finding, or where the evidence contradicted the finding or where the only reasonable conclusion contradicted the finding. Lord Diplock has described this ground of challenge as “irrationality” (Footnote: ⁴).

In the well-known words of Evans LJ in Georgiou v Customs and Excise Commissioners [1996] STC 463, at 476:

The Appellants were granted permission to appeal under Ground 3 in relation to three findings of fact by the FTT, discussed below. In the hearing, Mr Brown raised an additional challenge to another finding of fact. Mr Brown, quite rightly, accepted that he did not have permission to argue that point, and that it would become relevant only if we were to set aside the FTT’s decision and remake it. Since that is not the decision we have reached, we need say no more about that additional challenge.

The Appellants assert that the FTT erred when it found that Mr Giller was aware of VAT fraud in the industry from his time working at Ebrit, before he began work for Opus.

Mr Brown relied on the following points:

The challenge to this finding is without merit.

The FTT examined this issue, and the arguments of the Appellants, in considerable detail, at [55]-[70]. It explicitly referred to and took into account all of the issues raised by Mr Brown. Point (1) is recognised by the FTT at [58], [59], [60] and [62]. Point (2) is explicitly referred to at [66]. Mr Giller’s evidence regarding point (3) is clearly recorded at [56], [66] and [67].

The FTT took all of these factors into account, and, in accordance with the task before it, weighed them against other factors, including those relied on by HMRC. Its conclusion is recorded at [68]-[70]as follows:

In reaching that conclusion, the FTT had decided not to accept Mr Giller’s evidence, stating at [65]:

The FTT’s reasoning in relation to this issue took all material relevant factors into account and reached an evaluative decision. The weight to be afforded to the various facts, and the weight to be afforded to Mr Giller’s evidence, were quintessentially matters for the FTT. We cannot find fault with the FTT’s reasoning. Its decision was entirely rational.

Mr Brown argued that the FTT “did not take into account, in finding that [Mr Giller] had failed to make checks, that he had checked the suppliers had Gross Payment Status i.e. that the Commissioners had granted suppliers GPS and therefore the Appellant believed they had carried out their own checks on the reliability of the supplier” (Footnote: ⁵).

In addition, said Mr Brown, Mr Giller did carry out further checks in respect of the final supplier, ATC Nationwide. The FTT’s conclusion (at [202]) that these additional checks “indicated no meaningful departure by Mr Giller from the woeful approach to due diligence up to that point in time” was unfair and irrational, particularly since the additional checks are said by HMRC to be relevant in their published guidance.

We have no hesitation in rejecting the complaint regarding checks said to have been made by Mr Giller of the GPS status of the five suppliers.

In the first place, the FTT clearly did take those checks into account, expressly recording the Appellants’ case on the point at [48]-[49]. Mr Brown’s real complaint can only be that the FTT should have accepted that those checks were adequate due diligence, or should have carried more weight. However, the FTT was fully entitled to place limited weight on GPS status. It is a status which exists for the purposes of the subcontractor regime applicable to the Construction Industry Scheme, and not for VAT purposes, and it cannot replace adequate due diligence where, as the FTT found, there were so many “red flags” in relation to each of the five suppliers.

Secondly, Mr Giller did not, in any event, check the GPS status of each defaulting company. In relation to the first company, RWR Contract Management Ltd, the FTT did not accept Mr Giller’s evidence on this issue, and found as a fact that no GPS check was carried out: [108]. In relation to the fifth company, ATC Nationwide, the FTT again did not accept Mr Giller’s evidence, and found as a fact that no GPS check had been made: [201].

In relation to ATC Nationwide, a complaint that the FTT was unduly dismissive of the checks which Mr Giller did carry out could not serve to establish any error of law. The FTT took into account the checks that were done. The extent to which those checks were satisfactory from a due diligence perspective was a matter for the FTT.

In any event, Mr Brown’s complaint in relation to the ATC checks is, at best, another island hop. It fastens on to one part of [202] while ignoring both the rest of that paragraph and, more importantly, the other findings of fact which preceded it. In the FTT’s detailed analysis of Opus’ dealings with ATC Nationwide, the FTT found that: although Opus had a contract with ATC (whereas it had no contracts with the other four defaulters), the contract had absolutely nothing to do with the services in fact supplied and actually provided for Opus to supply services to ATC ([191], [[197]); Opus was introduced to ATC by someone at ATC called Dean who approached Opus after ATC had found Mr Giller on LinkedIn ([195], [196]); Mr Giller made no check of the accounts of ATC ([198]); Mr Giller did not check who the directors of ATC were ([198]); Mr Giller did not check the banking details of ATC or obtain any credit report or trade reference for ADT ([199]); while trading with ATC, Opus had received from HMRC letters deregistering for VAT all of the previous four suppliers dealt with by Opus ([200]), and Opus carried out no CIS or GPS checks on ADT ([201]).

That is the context in which the FTT then concluded at [202] that it agreed with HMRC that there had been “no wholesale appraisal by Mr Giller of due diligence or the contract with ATC Ltd”, and made the comment complained of under this head.

It is not possible to detect any error, of law or otherwise, in the FTT’s conclusion.

This aspect of Ground 3 is an argument that the FTT erred in taking into account that there was a “repeating pattern of failures” arising from Opus dealing with five consecutive defaulting traders one after another.

The relevant finding was as follows, at [212]:

The basis of Mr Brown’s complaint was that Mr Giller claimed that he did not become aware of any potential VAT problem with any of the defaulters until August 2019, and had only become aware of the risk of VAT fraud in the supply chain in July 2019. This meant that he would only have had visibility, and therefore awareness, of any pattern of failure in relation to the suppliers by the time Opus was dealing with ATC.

This complaint is in part parasitic on the first complaint under Ground 3, challenging the FTT’s finding that Mr Giller was aware of the risks of VAT fraud in the supply chain before he joined Opus. We have rejected that challenge, and that element of the complaint therefore falls away.

In relation to the defaulting traders specifically, the FTT was fully entitled, and indeed obliged, to take into account the “repeating pattern” described at [212]. In directing itself on the law, the FTT had referred to this at [43]:

It was the objective existence of the pattern which mattered, not Mr Giller’s subjective awareness of individual deregistration notices. As Mr Brown correctly pointed out in relation to Ground 1, the test which the FTT must adopt in considering Kittel constructive knowledge is that of a reasonable businessman.

The FTT’s approach of taking the pattern into account was entirely rational and involved no error.

We reject Ground 3 in its entirety.

For our part, we would not have granted permission to appeal in respect of Ground 3. That is for two related reasons. First, it personified the “roving selection of evidence” which was criticised in Georgiou as leading to the unwarranted use of the Tribunal’s resources. Second, it did not address the materiality of the asserted errors in the context of the totality of the FTT’s extensive and meticulous findings of fact regarding the relevant transactions.

The appeal is dismissed.