© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
U2. De-registration
- May amount, in effect, to a practical prohibition on carrying out the activity
"[42] In view of the significant role, recalled in paragraphs 28 and 29 above, played by the VAT identification number as regards proof of the tax status of the taxable person and of the fact that transactions were actually carried out, purchasers of goods and recipients of services supplied by a taxable person who has been removed from the VAT register and therefore does not have a valid identification number for VAT purposes will not, in particular, be certain as to whether they would be able to demonstrate their entitlement to deduct the input VAT paid on that supply of goods or of services.
[43] In those circumstances, such potential purchasers of goods and recipients of services could be discouraged from entering into transactions with a taxable person who has been removed from the VAT register.
[44] That negative practical consequence of the removal from the VAT register means that the taxable person may be led to cease activity and thus resembles a temporary or permanent prohibition on pursuing that activity. It follows that, if the removal from the VAT register were to be perceived as a penalty for the repeated failure by the taxable person to comply with VAT obligations, that would be a particularly severe penalty." (Cityland C-164/24)
NON-COMPLIANCE
- Cannot be automatic, must be based on analysis of T's conduct
"[51] In the light of all the foregoing considerations, the answer to the questions referred for a preliminary ruling is that the first subparagraph of Article 213(1) and Article 273 of the VAT Directive and the principles of legal certainty and proportionality must be interpreted as precluding national legislation which, as interpreted by the tax authorities and the national courts, provides for the possibility for the competent tax authority to remove a taxable person from the VAT register on the ground of a failure to comply with VAT obligations on that taxable person’s part, without that tax authority analysing the nature of the infringements committed and the conduct of the taxable person at issue." (Cityland C-164/24)
FRAUD AND ABUSE
- Person may be de-registered for participating in fraudulent transactions even if they also carry out non-fraudulent transactions
"[83] In conclusion, I would dismiss the appeal. The UT was correct to conclude that HMRC have power to deregister a taxable person who takes part in transactions connected with the fraudulent evasion of VAT and knew or should have known that fact, even if they also make or intend to make supplies unconnected with fraud, provided that is a proportionate step in the circumstances. Deregistration in those circumstances would not of itself breach the EU principles of proportionality, fiscal neutrality or legal certainty." (Impact Contracting Solutions Ltd v. HMRC [2025] EWCA Civ 623, Falk LJ)
- Must be based on sound evidence that abuse/fraud is probable
"[67] What Ablessio and Cityland do emphasise is the requirement to comply with the principle of proportionality. Deregistration cannot be based on mere suspicion. Rather, there must be "sound evidence giving objective grounds for considering that it is probable that the VAT identification number assigned to that taxable person will be used fraudulently", and the decision must be based on an "overall assessment" (Ablessio at [34]). The "nature and the degree of seriousness of the infringements committed" must be examined (Cityland at [45])." (Impact Contracting Solutions Ltd v. HMRC [2025] EWCA Civ 623, Falk LJ)
EFFECTIVE DATE OF DE-REGISTRATION
Retrospective de-registration
- Recognition as taxable person cannot be withdrawn with retrospective effect
"[38] The arising of the right to deduct the VAT paid on the first investment expenditure is thus in no way dependent upon formal recognition of the status of taxable person by the tax authority. The only effect of that recognition is that such status, once recognised, cannot, save in situations of fraud or abuse, be withdrawn from the taxpayer with retrospective effect, without infringing the principles of the protection of legitimate expectations and legal certainty." (Breitsohl C-400/98)
See also
" [32] The Court has ruled that, once the tax authorities have accepted, on the basis of information provided by a business, that it should be accorded the status of a taxable person, that status cannot, in principle, subsequently be withdrawn retroactively on account of the fact that certain events have or have not occurred, save in cases of fraud or abuse (judgment of 28 February 2018, Imofloresmira – Investimentos Imobiliários, C‑672/16, EU:C:2018:134, paragraph 36 and the case-law cited)." (ITH Comercial C-734/19)
- De-registration as a prospective action
"[53] In what follows I will for convenience generally refer only to deregistration. As a matter of law, however (and as is illustrated by Cityland), I can see no relevant distinction between deregistration and a refusal to register. In particular, both are prospective in nature. We are not concerned with actions that have a purported retrospective effect." (Impact Contracting Solutions Ltd v. HMRC [2025] EWCA Civ 623, Falk LJ)